I am running Ignition in 800x600 mode. The game runs well until suddenly my car explodes. And every time it re-spawns it explodes again.

Solution:
Turn off perspective polygons (under GFX options in the Options menu)

This answer was hidden in the post by Strijkbout over an alternative dosbox.conf. So I thought I post the problem and the solution for others who encounter it. But many thanks to Strijkbout for supplying the solution in the first place!!!