Hi Everyone,
Well after a frustrating time with this game I've finally managed to solve the crashing problem I was having with it. What eventually solved the problems for me was not installing the game in the defaut directory suggested by the GOG installer (i.e Program Files (x86)\GOG.com\Two Worlds. Instead I installed the game to a different directory outside of Program Files, and all of the constant crashing stopped. I just thought I'd post here in the hope that it will help others who are having similar problems.
As to the game itself I'm loving it. Yes the voice acting is kinda corny, but all in all the game is a lot of fun and in my opinion not worthy of the bad reviews it received. It's a lot of fun, and very addicting.

This is actually something I've seen with respect to a lot of games: if you're on Win7, don't install to the default location. Seems to cause no end of issues for many people. I've got mine set up so the games are on a different hard drive altogether and sim-linked through Program Files (not through the x86). I've had no issues so far with any games.
Anyway, thanks for posting your solution. I'm betting it will help a lot of people.

You shouldn't install any game into program files on Windows Vista or 7. I can't tell you how many problems I have heard of fixed simply by avoiding the directory. I agree with the protection that Microsoft added but it is causing many people issues.

Control Panel->User Accounts->Change User Account Control settings->"Never notify"->OK
Problem solved :D

Except for the fact that it lowers security on your system.
For anyone knowledgeable about computers than that option is fine, otherwise they shouldn't touch it.
...
That said I would never put it on for myself, it is bloody annoying.

Not quite. I have that setting enabled, and I still had the problems with the game being installed in program files. So the issues still arise even with UAC turned off.
Personally I never install games into program files, it's just with two worlds I was tired and didn't notice where the game had installed. It wasn't until I started investigating the constant crashes that I realised what I had done, and it's telling that the moment I uninstalled the game and reinstalled outside of program files, that the crashes stopped.
The steps I took to install and run this game on Windows 7 are,
Uninstall PhysX
Install game to folder outside of Program Files
Install latest version of PhysX from Nvidia
Turn off Shadows in the video options.
Once I did that, the game stopped crashing and I started having fun :). Note that I tried everything except for the installation outside of program files initally and the game constantly crashed. It was only after I uninstalled the game and reinstalled making sure that this time it was installed outside of program files that the game worked.
I love this game, and I can't wait until Two Worlds 2. I'm driving my wife nuts walking around talking in Ye Old English ;p.

For reference, the latest PhysX version is always available from this link.
Verily, said game's verbiage doth present itself most pleasingly to mine ears. Mayhap yon sequel will recapitulate mine enjoyment of the same. :)

I had random crashes, especially when many units were fighting and action was thick
the digital steam version gives me an option to launch in Direct-X 10 mode if launched fromt he games list only within steam application, this has fixed it and i have not crashed since.

Your issue may be different, but might be worth a try.

Theoretically, running games as administrator should also solve any problems related to installing them in Program Files. But I avoid installing there anyway... the protections are there to prevent unwanted changes to my system, but I hardly consider my games to be threats in that regard. Also I just prefer having my games in their own location for organizational purposes.