Running Windows 7 Ultimate 64bit on a Core 2 Duo and a 8800 GTX.
In certain areas of the game, mainly the town of Arx at the moment, the screen begins to stall and/or tear and ill just see black with maybe a few textures (doors or buildings usually) that are far away at which point it will start rendering normally after transporting me a few feet ahead. I've tried a variety of resolution settings and graphics settings both in game and through the nvidia panel. I've reinstalled the game a few times too but nothing seems to be helping. If anyone has any ideas or solutions i would appreciate it.

Have you tried right clicking on the game shortcut going to properties, then the compatibility tab and using the settings in their? I would try windows xp compatibility mode and run it as an administrator.
Also in the game options if you turn off bumpmapping does the problem still persist?

I've tried just about all the compatibilities and I've turn off bump mapping as well too and no luck.

I have those identical specs
Windows7 Ultimate 64-bit, Core 2 Duo and 8800gtx.
I have Arx set to windows 98 compatability (stops the fatal memory crash). Works fine on my machine.
Obvious question - have you made sure your Graphics driver is up to date?
No other games getting the same sort of issues?
Do you get the loading screen hang? I get that on my machine.....

If you're meaning the game pauses at a black screen, that's normal behaviour for this rather buggy game. :)

I've tried it on win98 compatibility, drivers are up to date, no other games having any issues and i only hang right after it loads a game. I've took a screenshot of it, seems like most of arx does this. Only see stuff in the distance or so and if i keep walking forward or somewhere it will eventually get me back to normal after it spits me out.

Have you tried rolling your graphics card drivers back? maybe try some 18x drivers and see if that has any effect?

I have the same issues. It is unplayable in the city of Arx, at least if you are not in a building. I believe it is an Nvidia issue. Very frustrating. I have to stop playing as I cannot get through the city. I have Win 7, GTX 260, and Core i7 920 for what it's worth. Really sucks as I want to play. Disabling bump mapping got me this far, but the troubles in Arx are too much. No luck with compatibility mode, either.

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Also if you using nVidia graphic card like GeForce from driver series Forceware 93.17 - you could open up nVidia Panel (right-click on desktop) -> 3D Settings -> Use advanced 3D settings (take me to) -> TURN ON Application Extensions (or TURN OFF if they are TURNED ON). Its mainly use with older apllications (Arx Fatalis is such one), turning it on could help with crashing and graphic issues.

Dunno will it work with newer GeForce cards, haven't met them, also unknown to me how their control panels looks and works.

But it is worth a try.

I've got a similar machine (Win7 64-bit, Nvidia card) and was having similar problems in the city of Arx and other large areas like the troll camp. I just tried setting textures to 16bpp and texture size and LOD to their lowest settings, and it seems to have cleared up the problems in the city of Arx. Of course, the game looks a little worse, but I'm not playing an 8-year-old game for the graphics. :)

I suspect the detail overlays were largely at fault, and I wasn't a huge fan of the effect in the first place so I'm not missing it.

These changes seem to substantially improve my load times on games saved in crowded areas like Arx or the tavern, too.

Yep, Level of Detail (LoD) is the problem.

None of the other settings matter, just turning this to low removes those black screens (and it's kinda hard to tell the impact on the visuals anyway :D ).