Ever since I started Act 2 and got a capsule drive, the game freezes after give or take 10 minutes The game's audio still goes on like normal but the game itself just hangs. Before Act 2, the game had no issues whatsoever. Anyone else run into this problem and if so, did you manage to fix it?

Install the community patch, it fixes the issue:
https://www.i-war2.com/downloads/category/4-patches-fixes

More information about why this happens is here:
https://www.i-war2.com/news/181-dagda-and-wolf%E2%80%99s-lair-bugs-fixed-after-21-years