I had a post all typed up and then iexplore crashed. It was great!
So in looking at your dxdiag and client log it the line:
ERROR Startup: Vertex shader version too low (0.0 < 2.0)
Indicates that directx isn't able to get the correct vertext shader version from your card, which should certainly support it. I believe (the person who would know the answer for certain is out of the office) that from the dxdiag you do not have full support of DirectX 9 installed which is needed to run the game. Try running the installer from the Microsoft site and restart. If that does not work, it would would be worth trying to download and install the DirectX 9 SDK.
Microsoft DirectX 9 End User web install