Hmmm, reinstall the game as the Granny error is for 3d modelling.
Your graphic card just allows you to run it as it is a pixel shader 2.0 card.
So reinstall would be the best idea I think, or check
www.radgametools.com for Granny information, perhaps get a download and include the .dll files in the game folder. As in download the crowd scene demo and get the granny2.dll from the demo folder and put it in the game folder with the game .exe file.