Disabling antialiasing should do the trick. GeforceFX cards are really not very capable of doing AA.
As I said, I tried setting everything as low as it could go including turning antialiasing off (it was the first thing I tried) and yes, I did restart the game before testing. As with the starter of this thread, performance is fine if I don't looks at anything or are zoomed out loads (I missed that out in my first post). Also there is even jerkiness on the ship design editor and race creator screens that include a render of a ship(s). Menus and everything run fine. What I don't get is how I can run games like Torchlight, Audiosurf and Portal no problem but not Gal Civ 2!
Edit: After some experimentation, I disovered that is solely ships that re problematic (deleted starting ships on a new game and it runs fine) - hope this helps. Maybe there was some fancy ship rendering effect added in a expansion pack that my graphics card isn't very good at?