After spending some time on this today I have finally got Arcanum working on my Win7 64 bit windows machine. I think the main issue was the graphics card a AMD Radeon HD 6800 Series card.

All the sprites and text were blurred after install. I tried -doublebuffer and -no3d but that did not fix my problem

I then added the Application Arcanum to AMD Catalyst centre and set Morphological filtering to Off.

Problem solved. The game looks great with the HD patch.

No just enjoying it.

Hope this helps others.