Using Windows XP and ATI Radeon 9000.

Problem is when the game is running the sides of the screen are very fuzzy and only the center is sharp.

Now in config program in 3D options section there is "3D Animations" and "Use 3D acceleration." Now having only 3D animations checked while Use 3D acceleration not checked solves the problem.
can anyone tell me what is the effect of "Use 3D acceleration" (what is the difference between that and "3D animations"?) I want to play with 3D on but if that's the only way to solve the problem I can play with it off.

Also any other way to solve the problem?

3D animations do not actually use 3d acceleration as i understand it. According to the blurb, they just affect how nice the spells and animations look. By clicking 3d accelerations you enable 3d acceleration (eg by opengl, or direct3d).

Do you have any problems with other 3d accelerated games? Make sure you have the latest drivers and directX installed of course. You could also try de-selecting 32-bit textures and disabling every graphical effect you can find. (eg vertex padding, translucent shadows etc)

Stick to a standard resolution and run the game with everything but 'use 3d acceleration' off. If that's ok, then you can start adding other effects back in by a process of elimination.

What does the picture look like when you test your graphics settings? (when you get the coloured squares) Is it still fuzzy around the edges?

Thanks for the help, the problem was there in all resolutions and with latest drivers and the test screen was fine, but I got it solved now....

I turn off anti-aliasing for openGL in advanced display properties. It also solved another problem with movies being patchy and with the green clour (the one for selection rectangle, circles under your party PCs and so on) being too dark in many places.

Glad you got it sorted. for some reason BG2 doesn't like Anti Aliasing and Radeons...you're about the third person i've heard about now