I reinstalled the game and now the thing does not scale into its full size like before(at least in height dimension (1600x900)).
Now its just a small box in the middle of the screen.
Tried the vanilla version with the installer mod and everything worked so what gives?
What can i do to solve this problem on the GOG version

Be sure to send a support ticket.

Have you tried ALT+ENTER?

I am having the same issue as GibsonFlyingV. Alt+Enter only elicits an error tone. This worked fine in the past 6+ months ago...I finally am returning and the resolution is all off-center. I have tried to uninstall and re-install with GOG downloader but to no avail. Seems something is wrong with the graphics mode setup. LOTR II does not have options within the grapshics mode setup to set resolution. LOTR original launches and plays fine.

Win8 updates broke graphic compatibility?

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After some tinkering, I found that by going to the root LOTR 2 folder, you locate the "Lords2.exe". If you right-click the .exe -> Properties -> Compatibility Tab -> Check the "Disable display scaling on high DPI settings"

This solved my issue, running in full screen without the aspect ratio skew

Yes and it does not work,its not dos based, Tried it before.Didnt work.

I just reinstalled it fresh to E:\GOG\LOTR2 and everything worked perfectly.

I tried to select "Full Screen -> Off" (or "No"). It messed up the colors for a second and then told me that I couldn't go to non-full-screen.

So, I don't think it's a corrupt install file.

I'm lost from here.

Ok.I found the solution to the problem.
It seems that the last time some file must have been modified/changed somewhere in the OS which seemed to have cause such a thing.

I went and changed the resolution and then could change scaling options in my CCC built-in display section , put the scaling option into "fit to ratio" and run the game perfectly scaled.Then put it back to the old resolution and everything works now as intended whatever scaling i choose.
It seems that over the years something must have put the "centered" scaling option as default