This game used to work fine a few years ago, I've tried launching it with different windows compatibility modes but to no avail.

Familiars are not visible, the guards are not visible, same with the wild boars and the cave spider at the start of the game, all I can see is their shadows. (However, launching LOL3 under Windows 7 Compatibility seem to work for the spider, but all other sprites including the guards are still invisible/transparent).

I've tried changing the in-game settings to Nglide, software and DX and still no results. I even manually updated Nglide to the latest version and went through gog galaxy to verify/repair the game but nothing seems to work.

Does anyone know how to fix this or have any idea on what to do to resolve these graphical issues? This game used to run perfectly fine on the same laptop about 2 years ago with no graphical errors whatsoever.

That's a very weird issue!
I'm assuming your running Windows 10? I just checked with my Windows 10 LOL3 install and I can see the sprites including my familiar and the wild boars no issue no matter what graphics engine I'm using.

I don't have any compatibility modes engaged either.

Some things to try:
I use dgVoodoo2 instead of Nglide (in 1024x768 glide mode for the best look), maybe give that a shot. (Must put the correct glide files from the zips' "3Dfx\x86" into the main LOL3 folder
When running "dgVoodooCpl.exe" I reccomend enabling "Inherit Color Profile in Full Screen" You can also turn off the watermark, though I recommend leaving it on initially to make sure dgVoodoo2 is working properly with the game.

Try downloading the full LOL3 installer and reinstalling instead of using Galaxy

Updating your video drivers

Could also try updating DirectX with the installer that adds legacy components
https://www.microsoft.com/en-ca/download/details.aspx?id=35

Could also try DXWnd as the author has created a configuration preset for Lands of Lore 3 that can be imported from the export folder.
Note that if you try this, you'll have to "Modify" the preset and make sure that the "Path is pointed to your own LOL3.dat . The only way I was able to get the "Launch" part to work was to create a .bat file with my specific path and arguments.
e.g. "D:\Games\GOG\Lands of Lore 3 DxWnd\LOL3.EXE" -CD. -WEAK"
For fullscreen in DXWnd in the "Position" Section: Enable "Hide desktop background", "Keep aspect ratio" and "Desktop"

Yeah I'm on windows 10 and installed lol3 using the direct download, i tried gog galaxy after to double check but no results. I updated my drivers and also updated DirectX with the provided installer too, along with using dgVoodoo on the provided files and still no avail.

However, strangely enough - installing the game on the OS C drive instead of the D Drive - the game is running as normal with no issues. Even copied and pasted old save files from the game in the D drive over to the game in C drive and they worked fine as well. So yeah, installing the game on the OS drive seems to make it function well apparently lol. Thanks again for the help and troubleshooting tips btw!