I checked my driver version and it is up to date.
Heres the log after following your instructions GSH.
DIAG| maininit:491 |20:37:39|84 |Version Information Section
DIAG| maininit:492 |20:37:39|112 | BZ2 build PublicBeta5.1
DIAG| maininit:503 |20:37:39|112 |Session started Fri Aug 02 20:37:39 2002
DIAG| maininit:509 |20:37:39|112 |CPU: 1 processors, type 586
DIAG| maininit:510 |20:37:39|112 |CPU: Intel(R) Pentium(R) 4 CPU 1.60GHz
DIAG| maininit:511 |20:37:39|113 |CPU: x86 Family 15 Model 1 Stepping 2
DIAG| maininit:514 |20:37:39|113 |Executed by BRIAN-4505802F8\Brian on Windows Version: 5.1.2600 'Service Pack 3' PlatformID=2
DIAG| DXUT:2083 |20:37:40|1111 | DXUT pause on change device
DIAG| DXUT:1343 |20:37:40|1151 | DXUT pause on minimize
DIAG| DXUT:1516 |20:37:40|1158 | DXUT pause on minimize
DIAG| vid:507 |20:37:40|1396 |In Vid::OnCreateDevice, pd3dDevice = 0x061ECC80
DIAG| vid:524 |20:37:40|1396 |d3d: supports range based fog
DIAG| vid:542 |20:37:40|1396 |d3d: NO border address mode
DIAG| vid:569 |20:37:40|1396 |d3d: not enough texture blend stages (0) to support bumpmaps. (Need 4)
DIAG| vid:494 |20:37:40|1400 |DXT Textures - allowing because your card isn't on the unsupported list. Edit render*.cfg to force it on/off
DIAG| vid:608 |20:37:40|1400 |D3D Adapter Identifier info:
DIAG| vid:609 |20:37:40|1400 | Driver: ati2dvaa.dll
DIAG| vid:610 |20:37:40|1400 | Description: RAGE 128 PRO Ultra GL AGP (Microsoft Corporation)
DIAG| vid:611 |20:37:40|1400 | DeviceName: \\.\DISPLAY1
DIAG| vid:612 |20:37:40|1400 | DriverVersion: 0x0006000D000A139B
DIAG| vid:613 |20:37:40|1401 | VendorId: 0x00001002
DIAG| vid:614 |20:37:40|1401 | DeviceId: 0x00005446
DIAG| vid:615 |20:37:40|1401 | SubSysId: 0x04091002
DIAG| vid:616 |20:37:40|1401 | Revision: 0x00000000
DIAG| vid:618 |20:37:40|1401 |Dumping D3D9 Device Caps:
DIAG| vid:620 |20:37:40|1401 | DeviceType: 0x00000001
DIAG| vid:621 |20:37:40|1401 | AdapterOrdinal: 0
DIAG| vid:622 |20:37:40|1401 | Caps: 0x00020000
DIAG| vid:623 |20:37:40|1401 | Caps2: 0x00000000
DIAG| vid:624 |20:37:40|1401 | Caps3: 0x00000000
DIAG| vid:625 |20:37:40|1401 | PresentationIntervals: 0x80000001
DIAG| vid:626 |20:37:40|1401 | CursorCaps: 0x00000000
DIAG| vid:627 |20:37:40|1401 | DevCaps: 0x00089650
DIAG| vid:628 |20:37:40|1401 | PrimitiveMiscCaps: 0x00100272
DIAG| vid:629 |20:37:40|1402 | RasterCaps: 0x00210197
DIAG| vid:630 |20:37:40|1402 | ZCmpCaps: 0x000000FF
DIAG| vid:631 |20:37:40|1402 | SrcBlendCaps: 0x00001FFF
DIAG| vid:632 |20:37:40|1402 | DestBlendCaps: 0x000003FF
DIAG| vid:633 |20:37:40|1402 | AlphaCmpCaps: 0x000000FF
DIAG| vid:634 |20:37:40|1402 | ShadeCaps: 0x00084208
DIAG| vid:635 |20:37:40|1402 | TextureCaps: 0x00004007
DIAG| vid:636 |20:37:40|1402 | TextureFilterCaps: 0x03030300
DIAG| vid:637 |20:37:40|1402 | CubeTextureFilterCaps: 0x00000000
DIAG| vid:638 |20:37:40|1402 | VolumeTextureFilterCaps: 0x00000000
DIAG| vid:639 |20:37:40|1402 | TextureAddressCaps: 0x00000017
DIAG| vid:640 |20:37:40|1402 | VolumeTextureAddressCaps: 0x00000000
DIAG| vid:641 |20:37:40|1402 | LineCaps: 0x0000001F
DIAG| vid:642 |20:37:40|1403 | MaxTextureWidth: 1024
DIAG| vid:643 |20:37:40|1403 | MaxTextureHeight: 1024
DIAG| vid:644 |20:37:40|1403 | MaxVolumeExtent: 0
DIAG| vid:645 |20:37:40|1403 | MaxTextureRepeat: 0
DIAG| vid:646 |20:37:40|1403 | MaxTextureAspectRatio: 0
DIAG| vid:647 |20:37:40|1403 | MaxAnisotropy: 16
DIAG| vid:648 |20:37:40|1403 | StencilCaps: 0x000000FF
DIAG| vid:649 |20:37:40|1403 | FVFCaps: 0x00180002
DIAG| vid:650 |20:37:40|1403 | TextureOpCaps: 0x001EFFFF
DIAG| vid:651 |20:37:40|1403 | MaxTextureBlendStages: 3
DIAG| vid:652 |20:37:40|1403 | MaxSimultaneousTextures: 2
DIAG| vid:653 |20:37:40|1403 | VertexProcessingCaps: 0x0000017B
DIAG| vid:654 |20:37:40|1403 | MaxActiveLights: -1
DIAG| vid:661 |20:37:40|1403 | !! CLAMPED MAXLIGHTS: 16
DIAG| vid:665 |20:37:40|1404 | MaxUserClipPlanes: 6
DIAG| vid:666 |20:37:40|1404 | MaxVertexBlendMatrices: 4
DIAG| vid:667 |20:37:40|1404 | MaxVertexBlendMatrixIndex: 255
DIAG| vid:668 |20:37:40|1404 | MaxPrimitiveCount: 65535
DIAG| vid:669 |20:37:40|1404 | MaxVertexIndex: -1
DIAG| vid:670 |20:37:40|1404 | MaxStreams: 16
DIAG| vid:671 |20:37:40|1404 | MaxStreamStride: -1
DIAG| vid:672 |20:37:40|1404 | VertexShaderVersion: 0xFFFE0300
DIAG| vid:673 |20:37:40|1404 | MaxVertexShaderConst: 8192
DIAG| vid:674 |20:37:40|1404 | PixelShaderVersion: 0x00000000
DIAG| vid:675 |20:37:40|1404 | DevCaps2: 0x00000041
DIAG| vid:676 |20:37:40|1404 | Reserved5: 0x00000000
DIAG| vid:677 |20:37:40|1404 | MasterAdapterOrdinal: 0
DIAG| vid:678 |20:37:40|1404 | AdapterOrdinalInGroup: 0
DIAG| vid:679 |20:37:40|1404 | NumberOfAdaptersInGroup: 1
DIAG| vid:680 |20:37:40|1404 | DeclTypes: 0x000003FF
DIAG| vid:681 |20:37:40|1405 | NumSimultaneousRTs: 1
DIAG| vid:682 |20:37:40|1405 | StretchRectFilterCaps: 0x00000000
DIAG| vid:683 |20:37:40|1405 | VertexTextureFilterCaps: 0x1B031B00
DIAG| vid:684 |20:37:40|1405 | MaxVShaderInstructionsExecuted: -1
DIAG| vid:685 |20:37:40|1405 | MaxPShaderInstructionsExecuted: 0
DIAG| vid:686 |20:37:40|1405 | MaxVertexShader30InstructionSlots: 32768
DIAG| vid:687 |20:37:40|1405 | MaxPixelShader30InstructionSlots: 0
DIAG| vid:690 |20:37:40|1405 | MaxPointSize: 64.00
DIAG| vid:691 |20:37:40|1405 | PixelShader1xMaxValue: 0.00
DIAG| vid:692 |20:37:40|1405 | MaxNpatchTessellationLevel: 0.00
DIAG| vid:693 |20:37:40|1405 | MaxVertexW: 0.00
DIAG| vid:694 |20:37:40|1405 | GuardBandLeft: 0.00
DIAG| vid:695 |20:37:40|1405 | GuardBandTop: 0.00
DIAG| vid:696 |20:37:40|1405 | GuardBandRight: 0.00
DIAG| vid:697 |20:37:40|1406 | GuardBandBottom: 0.00
DIAG| vid:698 |20:37:40|1406 | ExtentsAdjust: 0.00
DIAG| vid:740 |20:37:40|1406 |In Vid::OnResetDevice, pd3dDevice = 0x061ECC80
DIAG| DXUT:2570 |20:37:40|1407 | DXUT unpause on change device done
DIAG| vid:922 |20:37:40|1561 | Gamma controls not supported. Not going to try adjusting them.
DIAG| setup:89 |20:37:40|1672 |Drive type : Fixed
DIAG| setup:159 |20:37:40|1673 |Startup directory : C:\Program Files\Battlezone II
DIAG| vid:1192 |20:37:43|4429 |Vid::SetMode - ord(0) fmt(23), w(1024), h(768) bbCount 2
DIAG| vid:1212 |20:37:43|4429 | bFmt(23), MSType(0), MSQual(0), DSFmt(80), Win(0)
DIAG| vid:1223 |20:37:43|4429 | Refresh(60), Interval(0), Flags(2)
DIAG| vid:1224 |20:37:43|4429 | hWnds = 000B03EE 000B03EE 000B03EE 000B03EE
DIAG| DXUT:2083 |20:37:43|4430 | DXUT pause on change device
DIAG| vid:782 |20:37:43|4570 |In Vid::OnLostDevice
DIAG| DXUT:1383 |20:37:43|4624 | DXUT unpause on restore
DIAG| DXUT:1482 |20:37:43|4651 | DXUT unpause on restore
DIAG| DXUT:2570 |20:37:43|4651 | DXUT unpause on change device done
DIAG| vid:1232 |20:37:43|4652 |DXUTCreateDeviceFromSettings = 00000000, lost = 1
DIAG| vid:1238 |20:37:43|4652 |Trycount 0, device lost = 1 1
DIAG| DXUT:5434 |20:37:43|4671 | AttemptAcquire device = 0x061ECC80, lost = 1, paused = 0
DIAG| DXUT:5448 |20:37:43|4672 | noticed device lost
DIAG| DXUT:5452 |20:37:43|4672 | Coop level check failed.
DIAG| DXUT:5516 |20:37:43|4672 | Try to reset the device
DIAG| vid:740 |20:37:46|6808 |In Vid::OnResetDevice, pd3dDevice = 0x061ECC80
DIAG| vid:1248 |20:37:46|7368 |Attempted acquire & render, lost = 0 0
DIAG| input:1069 |20:37:48|9445 |Double click time=200 ms, threshold=4,4
DIAG| input:1090 |20:37:48|9445 |3 button mouse, Left=0 Right=1
DIAG| input:143 |20:37:48|9446 |Keyboard repeat delay=[500] speed=[31]
DIAG| MissionHandler:1271 |20:37:51|12081 |Expanded game UI file of 'bzgame_moves_1024x768.cfg' not found. Using default of 'bzgame_moves.cfg'
DIAG| dsutil:124 |20:37:56|17267 |DirectSound 8 System started. Noted capabilities:
DIAG| dsutil:131 |20:37:56|17268 | DSCAPS_CERTIFIED
DIAG| dsutil:131 |20:37:56|17268 | DSCAPS_CONTINUOUSRATE
DIAG| dsutil:131 |20:37:56|17268 | DSCAPS_PRIMARY16BIT
DIAG| dsutil:131 |20:37:56|17268 | DSCAPS_PRIMARYMONO
DIAG| dsutil:131 |20:37:56|17268 | DSCAPS_PRIMARYSTEREO
DIAG| dsutil:131 |20:37:56|17268 | DSCAPS_SECONDARY16BIT
DIAG| dsutil:131 |20:37:56|17268 | DSCAPS_SECONDARYMONO
DIAG| dsutil:131 |20:37:56|17268 | DSCAPS_SECONDARYSTEREO
DIAG| dsutil:137 |20:37:56|17268 | dwPrimaryBuffers = 1
DIAG| dsutil:138 |20:37:56|17268 | dwMaxHwMixingAllBuffers = 1
DIAG| dsutil:139 |20:37:56|17268 | dwMaxHwMixingStaticBuffers = 1
DIAG| dsutil:140 |20:37:56|17268 | dwMaxHwMixingStreamingBuffers = 1
DIAG| dsutil:141 |20:37:56|17268 | dwFreeHwMixingAllBuffers = 0
DIAG| dsutil:142 |20:37:56|17268 | dwFreeHwMixingStaticBuffers = 0
DIAG| dsutil:143 |20:37:56|17268 | dwFreeHwMixingStreamingBuffers = 0
DIAG| dsutil:144 |20:37:56|17269 | dwMaxHw3DAllBuffers = 0
DIAG| dsutil:145 |20:37:56|17269 | dwMaxHw3DStaticBuffers = 0
DIAG| dsutil:146 |20:37:56|17269 | dwMaxHw3DStreamingBuffers = 0
DIAG| dsutil:147 |20:37:56|17269 | dwFreeHw3DAllBuffers = 0
DIAG| dsutil:148 |20:37:56|17269 | dwFreeHw3DStaticBuffers = 0
DIAG| dsutil:149 |20:37:56|17269 | dwFreeHw3DStreamingBuffers = 0
DIAG| dsutil:182 |20:37:56|17269 | -- SW buffers in use. Using 32 channels max
DIAG| dsutil:197 |20:37:56|17269 | Audio buffers will be placed in: Auto
DIAG| dsutil:210 |20:37:56|17269 |-- Prefsfile set audio mem purge at 33554432 bytes
DIAG| dsutil:213 |20:37:56|17269 |Done with audio caps log
DIAG| AudioSys:323 |20:37:56|17316 |Audio: DirectSound8 setup complete
DIAG| mcimovie:208 |20:37:58|19120 |Movie opened C:\Program Files\Battlezone II\\movies\intro.bik
DIAG| runcodes:154 |20:38:01|22636 |[Main] Entering run code [SHELL]
DIAG| icroot:193 |20:38:01|22640 |Root window now 640x480
DIAG| runcodes:154 |20:38:08|29038 |[Main] Entering run code [QUIT]
DIAG| maininit:418 |20:38:08|29451 |QUIT requested
DIAG| DXUT:1516 |20:38:09|30235 | DXUT pause on minimize
DIAG| vid:782 |20:38:09|30239 |In Vid::OnLostDevice
DIAG| vid:800 |20:38:09|30264 |In Vid::OnDestroyDevice, pd3dDevice = NULL
DIAG| dtrack:231 |20:38:09|30342 |DTrack FileSys c207/0 b4 max210 i211 mem1280
DIAG| varsys:237 |20:38:09|30343 |VarItem 'gameprefs' (scope) not being deleted
DIAG| varsys:237 |20:38:09|30343 |VarItem 'playback' (scope) not being deleted
DIAG| dtrack:231 |20:38:09|30343 |DTrack Misc c3210/0 b4 max3116 i3214 mem20480
DIAG| maininit:407 |20:38:09|30343 |System shutdown normally