The shadows behave very weirdly in interiors. Once the door to the outside closes, everything becomes very blurry, especially the characters. The overall shade of the illumination changes and it can be very distracting overall. I know it is because of shadows because when I disable them, it no longer happens.

In my looking for a fix, I stumbled upon this
https://www.moddb.com/games/two-worlds/downloads/two-worlds-control-panel

It is no longer maintained and barely works, but one tweak included in it is "High Quality Shadows". It makes the shadows in the game look better overall and removes the interior problem. But getting it to work can be problematic. Here is what you have to do:

1) Once you download it, you have to install it. You can do it anywhere.
2) Launch the control panel AS ADMIN!!! This is very important. It tries to link up with the game install but fails, because the registry entries it is using are not compatible with the GOG version. If you do not launch as admin, the panel will not be able to make the necessary registry edits.
3) Once you launch it as admin, navigate it to the Two Worlds exe where you have the game installed. The panel will then link up with the game and allow you to use some of its features (many of them are broken and no longer working).
4) Luckily, the high quality shadows still works. Go to the Tweaks section and the the subsection Graphics and click on the Enable High Quality Shadows button.
5) The shadows should be fixed now.