Sapphire made available an updated 9.11 AGP hotfix today. Installed and still have same problem. Ran DXDiag again, but with additional tests. DirectX7 test failed with 'Out of memory' error, but 8 and 9 ran fine...

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Direct3D 7 test results: Failure at step 8 (Creating 3D Device): HRESULT = 0x8007000e (Out of memory)
Direct3D 8 test results: All tests were successful.
Direct3D 9 test results: All tests were successful.


I also saw another post which asked people to install the debug version of DX, to which i tried as well and got 2 errors when running the DX tests...

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Adapter Info System\CurrentControlSet\Control\Video\{5F1CA656-35E7-4245-91A5-7F5119279F2F}\0000 in the list
CWDDE call to get adapter information succeed. System\CurrentControlSet\Control\Video\{5F1CA656-35E7-4245-91A5-7F5119279F2F}\0000
Get Adapter Info System\CurrentControlSet\Control\Video\{5F1CA656-35E7-4245-91A5-7F5119279F2F}\0000 from Dxobj 0XE1583010
M2IA obj was created, return M2IAObj 0XE21412C0 from table
M2IAObj was found in the list 0XE21412C0

Error[PP_PowerPlay]: pppciebus.c[133] -- Assertion '(PP_Result_OK == result)' has failed: Failed to retrieve GraphicsAdapterF0's Link Capabilities Register.
Warning[PP_PowerPlay]: cwddepm.c[869] -- 'FALSE' is false: Failed to retrieve bus parameters.


Doubt they have anything to do with Divinity 2 not working, but we'll see.
Unfortunately, running Divinity2 with DX debug configured and enabled produced no useful information, just generics...

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[3152] D3D9 Helper: Enhanced D3DDebugging disabled; Application was not compiled with D3D_DEBUG_INFO
[3152] Direct3D9: (INFO) :Direct3D9 Debug Runtime selected.



Again, i will state that re-installing DirectX and/or drivers does not fix the 'Not enough video memory' error.

Is there a debug mode available with the main executable where more information could be obtained?