First, my specs:
Windows XP Professional SP3 (32bit)
GeForce GTS 250
DirectX 9.0c (4.09.0000.0904)
Resolution: 1440x900

My problem:
Game was crashing after the videos, no error message on 3D card rendering and "Unable to open display" on software rendering.

Solutions that DID NOT WORK FOR ME and that I'm not currently using to run the game:
- Changing only fix_directx=0 to fix_directx=1 in config.ini
- Changing any compatibilty option in the shortcut.

How I fixed it (found this on a Steam forum post which you can find Googling: "urban chaos" "It's not working for me"):
I changed these options in the config.ini file:
video_card=4
video_res=4

Save the changes and run the game by pressing "Okay" without changing any setting in the pre-game window.

More details:
To keep the game from reseting these settings set config.ini to read only. If you do this any option you set in the game won't be saved. However if you follow the steps below you can change the settings and then "protect" the file:

1. Set the video_card=4 and video_res=4 options in the config.ini file and save the changes.
2. Run the game as explained before.
3. Change the in-game settings to your liking.
4. Close the game.
5. AGAIN: Set the video_card=4 and video_res=4 options in the config.ini file and save the changes.
6. SET THE config.ini FILE TO READ ONLY MODE.
7. ?????
8. Profit.

Bonus settings:
- Set play_movie=0 to skip the intro movies.
- Change max_frame_rate to a higher number to improve framerate (recommended: 45 or 60).