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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?
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