I'm having the exact same issues. My guess is it is my video card driver on Windows 7. I have a 2.67ghz i7 and 6 gigs of ram but an old X1900 that ATI doesn't support anymore...
The directX demo works perfectly fine though, but since that doesn't come with the steam version I can't play the game without watching the text slowly fade over and the cursor move slowly behind the mouse.
I sent an email about this, but I understand indie developers and decided to try here too. I haven't followed this series(I didn't even realize they kept making these games), but I remember playing Exile back on AOL and the first Avernum years later. One of my favorite RPGs.