I've done the fixes people have mentioned and am still experiencing some issues with both games.
I have done the install with both KOTOR and KOTOR2 as admin, did the "Run as admin" and "compatibility with XP SP2" options for both, and replaced the mss32.dll file in both directories.
The problem I am experiencing on both games seems to be the same issue however, I get into the games, I can play the games up until there is an explosion. In KOTOR I was doing the tutorial bit still before reaching the escape pod, where it crashed was the room with the robot you can reprogram and the console you can use to cause the explosion. I caused the explosion which caused my game to crash.
In KOTOR2 its pretty much the same issue, I play through for a couple hours on Peragus and when I get to the part where I have Kreia and Atton with me and we fight the assassination druid after his whole speech about how he organized the killing of the stations inhabitants. I defeat him, he does his self-destruct countdown and blows up, soon as he blows up game crashes.
Anyone else having this issue or might know how to fix it?
Running Windows Vista SP2 64-bit Quad-Core Processor @ 2.20Ghz & 4GB Ram w/ Dual ATI Radeon HD 4850 Graphics Cards in Xfire
Edit. I seem to have found a quick fix for it, I had to turn screen resolution down to 800x600, turn shadows off, turn off anti-aliasing and anistropic and set texture quality to "low" and turn off frame buffer effects.... going to have to toy around with this later so I can find stable settings that I can play on that will look nice and still not crash.... I was running at 1600x1200 High Textures "8 Sample AA" and "Antistrophy 8x" though it could got o 16x (game said to run 8x for best)
Edit 2. Ok still having the issue, have tested with all the different settings, been running at 800x600 with both samplings and the frame buffer effects turned off as well as shadows, it doesnt crash as often but I am still experiencing crashing due to explosions. My latest was on the surface of Telos when you run into the woman with the 2 droids and the mines in front of them all, she through a grenade and crashed the game for me