Is this a laptop? Kotor always had some problems running on a laptop.
Your video card is a low end card but sufficient for the game.
Try turning off some graphic options such as grass, shadows, soft shadows, anistropy and frame buffer. If you still have problems, then you can lower texture quality.
Also, update your drivers to the latest catalyst version:
https://support.ati.com/ics/support/default.asp?deptID=894&task=knowledge&folderID=27)
However, if you are using a laptop, you may have more success with the Omega drivers:
http://www.omegadrivers.net/) (note that I've never tried the game on a laptop)
(edit: soft shadows appear to be already off. I should get some glasses or get some sleep)