Based off the FS2_Open.log attached, you are not running the MediaVP's according to the log. Only the Retail files are present.
Secondly, color bit depth should optimally be set to 32bit, especially if your desktop is 32bit.
Thirdly, given the OpenGL extension that were reported as "not found", upgrading your version of OpenGL will do squat. 1.3 is perfectly fine for Fixed-Render pipeline though, so continue using -no_glsl and don't turn -normal on.
When you DO play with the MediaVP's, don't use MV_Advanced.
As a bare minimum, MV_Core and MV_Effects alone will provide a pretty nice boost to appearance, with MV_Assets providing higher poly models. I can't imagine that those three (in addition to MV_Music) would cause you any problems.
For the video card to be reporting the OpenGL as WinXP Release, it should say ATi/AMD Release. Please double check your Catalyst installation.
And your processor is new enough that you should also be able to get away with using an SSE build at a minimum, that may improve some performance. (These are only available as recent Nightly Builds and are still somewhat experimental, but we are looking at making them the new default providing we can make sure that they are stable enough for everyone to use)