I followed the instructions here on the third post and installed most of the listed mods: http://www.gamefaqs.com/boards/914155-arcanum-of-steamworks-and-magick-obscura/55804924
The patches are pretty self-explanatory in their purpose, and only the high-resolution mod was cosmetic. I still recommend that a lot, since the game isn't that pretty, and it's very easy to get lost amongst same-looking buildings with the default resolution.
In general, terra-arcanum seems to be the source for all these things. I didn't install the level cap remover, after hearing it might get buggy, and besides, level 50 seems high enough.
You may also want to right click on the game's .exe, click properties, and after the 'target line,' (should look like C:\GOG\Arcanum\Arcanum.exe' type -no3d- to get rid of a cursor bug.
You may follow the same procedure to have some other quality of life improvements, such as increasing scrolling speed or removing the scrolling distance if you've gotten the widescreen mod. A list of commands are here: http://www.terra-arcanum.com/phpBB/viewtopic.php?t=15208
Lastly, and this was very important for me, you may need to disable hardware acceleration if you're getting any kind of lag. For a game this old, you should not see any lagging, but this game really chugged along in parts with hardware acceleration turned on.
This is easy with XP, but the only reliable method I found on Vista was to download the direct x sdk. It's about 400 mb, but using it is simple. You just click on directX control pannel, click on the DirectDraw tab, and under performance uncheck 'Use Hardware Acceleration.' I've found this helped multiple old games with zero problems, nor has it interfered with modern games either. Here's the link: http://www.microsoft.com/downloads/en/details.aspx?FamilyId=572BE8A6-263A-4424-A7FE-69CFF1A5B180&displaylang=en