I found the issue with the Application Error.
The games always lag for me in 3D, so I had been trying different settings to get the game to play smoothly, so I added a launch option to steam I found in the forums to see if it helps (which it clearly didn't), but forgot to take it away.
Anyhow, I'm still getting a lot of lag when running 3D, so maybe you can use my dxdiag to see if you spot anything?