For your virtual memory, go to Conrtrol Panel/System/Advanced/Performance Settings/Advanced. At the bottom of that box, you will see how much virtual memory you have. If you want to change it, click on "change". You will probably see that it's set for "system managed size". I would check "custom size", and reset it to whatever you choose, minimum and maximum the same.
If it's set to system managed size, it's probably set at 768. You can try setting it to 1024, min. and max., and see how that works. You might or might not see an improvement. You might go to 1536 and see how that works. This is just a try and see what happens trial. You won't damage anything doing this. If you go down in value, you will have to reboot, going up, you won't.
If this doesn't do any good you can always set it back to system managed size, if you like, but you will have to reboot, that's normal.
On the other question, if you have "Application Preference" set, it lets your game choose what video settings to use, that will be okay. Just go to the game video settings and turn everything down as low as possible, and see if your game play improves.
karlt78, there is no way you should have that kind of trouble, with that video card, it should run Doom 3 easily. The only thing I can see with what info I have is, maybe if you had a faster processor, it would run better. But even so, running the game at 640x480 is not good. Something for sure is wrong.
That card needs one, or maybe two, (I'm not sure how many), power cords plugged into it. I know it needs at least one, and if you didn't do this, it for sure won't run right. You can't just plug it into the AGP slot, like some other cards.
When you updated your drivers, did you uninstall the old ones first? Did you use the ATi uninstall tool? Or maybe use "Driver Cleaner", after you uninstalled the old drivers? If you didn't do a clean uninstall/install, you might have some kind of driver corruption.
You should be able to play Doom 3 at 1024x768 at reasonable settings.
Please excuse me if you know and have done all this, I'm just trying to give some ideas.