Game Error 128
The game encountered a fatal DirectX issue while attempting to start. Try a different screen resolution or bit depth. If that doesn’t work, try new video drivers. 
Recently I switched from a Nvidia 9800gt to a XFX HD4890 and since I have been receiving the error code I listed above.
I don't play any games other than LOTRO and I have tested on both DX9 and DX10. I have updated all drivers, removed all Nvidia drivers, followed all steps that Turbine has given me but nothing has worked. So I am assuming it's either a bad card (still in 30 day replacement period) or some type of hardware conflict.
I would recommend you to use driver sweeper and reinstall the recent ati drivers for vista32....If this does not work install a fresh copy of windows and try again....since you have changed your entire system its better to install a fresh copy of windows...Also try some other games even if you do not play them..because it might be the fault of LOTRO...
I did run driver sweeper and reinstall drivers a couple days ago.
The only thing I have updated on this computer in the past year is the graphics card. Like I said I went from a Nvidia to a ATI. This weekend I am installing Win 7 64 so I am hoping that will fix my problem. Last night I narrowed it down to a possibly DX10 problem. I crashed 10 min into LOTRO while running DX10. I disabled DX10 and ran for 3 hours no crashes. I am assuming there is some odd conflict between LOTRO, DX10 and ATI cards.