Thanks for posting your specs.
I'll tell you why it's the case. It's because you're trying to play the game on an Intel GPU, which the game doesn't officially support.
Since you're using Vista, the first thing that you should do is check out the first 2 posts in this thread
and follow all of the directions there.
Then try opening the "swkotor.ini" file in your game folder with Notepad and enter the line "Disable Vertex Buffer Objects=1" under "Graphics Options", save and exit.
If none of that helps you can then resort to turning off the eye candy like you've already done, and reducing the resolution to minimum. The reason that I'm suggesting that you try the other stuff first is because your Intel GPU is a Series 4 which is newer and should be capable of running the game with at least some if not all of the eye candy turned on. By eye candy I mean:
2) Anisotropic filtering
3) Frame buffer effects
6) Any other stuff like that (I don't have either game installed right now).