Actually, it's quite simple, and I think some of the problem lies in the fact it's hard to set some of the settings in the graphics menu without them reverting.
First, find a reasonable res to start from. 1024x768 is safe, I started at 1280x1024.
You can go ahead and select 16,000,000 colors, if you think you have a pretty decent system. Oh, and supposedly screen flipping gives added smoothness by storing 2 frames of animations and flipping between them repeatedly.
From here you need to go into custom graphics options and make sure motion blur is off. All motion blur seems to do is chop the ball up, especially towards the bottom of the machine.
Once you are back in the main part of the graphics menu, make sure you go through it again and make sure the graphics settings are on "custom" and not one of the preset settings (like low, medium ,high, very high). Many times, despite going into the custom menu, the custom settings won't be selected and it will default motion blur back to on when the game is played.
Once you verify all the graphics settings go ahead and play. I found that this eliminated the need for compatibility mode on my Vista 64 system (still needed it in XP) it also completely eliminated the choppiness of the ball.
Now when I play the ball looks like a real pinball machine, and the game is easier and more enjoyable because of it.
So basically, Motion Blur Off, Screen Flipping On, but be sure to double and triple check that all the settings are where they should be if you still experience choppiness.
1) Set Resolution Smartly, start low and go up to what your PC can handle
2) Set Colors the same, 65k, 65k+, millions, set it to what you can handle, start low.
3) Screen Flipping On
4) Motion Blur Off in Custom Graphics
5) Double Check everything is set correctly including "custom" graphics, triple check if necessary.
6) If the game isn't smooth, the settings didn't stick, or your res/color settings are too high for your setup.
Let me know how this works for people.

The only problem i got with big race are the delayed flippers.

My system:
Vista64bit
Intel Quadcore 3.6Ghz
8Gb ddr3
HD5970

Thanks a lot! The problem is definitely the motion blur, it must be using some obsolete DirectX trick.
I tried many things, but even at a lower resolution, it was stuttery.
Without motion blur, it works fine at 1600x1200x24, perfectly smoothly on Win7 64, with no compatibility mode.

Yup turn off the motion blur will eliminate all slowdown and sound stuttering especially during frenzy. And guess what? The graphic look much more better and realistic.

I'm running this game on C2Q 2.5GHz, 3GB Ram on Vista x32, GeForce 460GTX.

Hey, just wanna inform you guys you can turn on Motion Blur for better effect but must disable Screen Flipping for better frame rate. But in the expense of the in game menu will become too fast when you want to navigate. But don't worry, the gameplay speed still run like normal.

Thanks! Turning off the motion blur solved the issues I was having, and made this game playable.

another option is to set the programm in Windows 95 compatibility and disable advanced text services and visual themes.

No lag at all even at very high resolution and quality.

It works on XP, dont know about Vista/7