Hi AV8R, wow it's great to see you in here again. I have previously asked about you as I was a bit 'concerned' at one point, after +G, you know...
Yeah you still need a game CD in the drive/or ISO image mounted. My package simply bypasses CD/ISO install as some Vista/7 users report problems even installing, and indeed can't install the patch or DDU either. It's also a neat way of not letting people play the game without first, hopefully, buying it. It is NOT a NoCD solution.
To answer your questions...
1. No matter which DX video card driver I select via LB2cfg, the graphics are poor quality (compared to DgVoodoo drivers)
* I can't remember now but I THINK the lb2cfg is set by default (by me) to 3DFX. So all you should need to do is install dgVoodoo (or not, if I included that - but I don't think so as different people have differing success with each different version - i.e. 1.40 Beta, 1.50 Beta, 1.50 Beta2). Sometimes I have seen the game automatically revert to Software mode if Direct3D is selected and is unable to be utilized, it MAY in some cases be the same with 3DFX). Yeah, the D3D drivers aren't a sure-fire way for LB2 on modern PCs at least, as there are some glaring graphical bugs. Why would you even use D3D over 3DFX?
2. Im unable to change the BASE TERRIAN in the options, all are inactive.
* Are you trying to access this particular menu option from the menu whilst in-game? If that's the case, these options are blanked out on purpose - by the game, not by me. You can change these options from the base menu screen only, before you get in-game. Press ALT-O at the base.
I hope my answers help - and of course, if you need any further help, I'd be glad to try - sir.