EUREKA! I've got it!
After my last post the penny dropped that I hadn't explored the Asus angle. I had been to Nvidia, Lucasarts etc.
Asus installed a couple of little programs with my card: Splendid Video and Gamer OSD (captures screen shots and videos of gameplay). Never knew OSD was there, and Splendid I thought was a watermark that I couldnt get rid of, anyway they operate in the background. OSD is the culprit though.
So I disabled them and now I can enable both soft shadows and frame buffer effects without flickering
I also removed the 'disable vertex buffer objects=1' from the .ini and it works fine still.
Remembered that a frame buffer effect is the speed blur. Just tested it using Master Speed; got the blur.
Lesson: use just the drivers from Nvidia, DON'T
let programs from the card retailer install.
Anyway if anyone else has this problem the way to solve it is:
Right click on desktop->properties->settings->advanced-> Asus tab and disable Gamer OSD.
Thanks for the quick response Q. I still dont have the 1600x1200 option available and I guess your patching solution is the only way I will get my proper resolution 1680x1050.