Do you have a multi-core CPU? If you do, then you're going to want to set affinity every time you start the game:
Originally Posted by Onihikage
After starting the game, press Ctrl-Shift-Esc to bring up the task manager. Right-click "Knights of the Old Republic" under the applications list and select "Go to process." Right click on the highlighted process (probably something like (sw)kotor.exe) and select "Set Affinity..." In the dialog box that comes up, deselect all but one core. Then return to the game and see what happens ^/_\^
Just remember that you'll need to do this every time you start the game.
With that 8600GT, I would keep that "Disable Vertex Buffer Objects=1" fix if I were you. You shouldn't have to roll back your drivers as long as you use that.
With that being said, starting over may be your only option. At least you hadn't gotten too far.