Generally don't bother with using Direct3D in the lb2cfg, go straight to 3DFX mode and use a glide wrapper, I see you have now used the glide wrapper successfully. Most here use dgVoodoo.
From that screenshot I'm guessing you are forcing a higher screen resolution through the glide wrapper, due to the blocky HMD text and cockpit lines?
You should generally setup your dgVoodoo config like this:
Apart from that, there's not much else you can do.