I followed your steps to the letter and my game still won't run. Each time I click the swkotor2.exe shortcut I get the same message "Star Wars: KOTOR 2 Stopped Working"
one thing I noticed that nobody seems to have mentioned yet is that when I run the video test it comes back failed. It says that my video drivers are out of date and that KOTOR2 requires NVIDIA cards require detonator 45 23 drivers or better. I have the most recent drivers installed. I also noticed that in the config section of the launcher it wont let me pick a resolution for the game, I'm sure this is a related error.
Any suggestions on how I might fix this?