You can try running the game in safe mode by the command line: torchlight.exe safemode=1
If that still doesn't work could we get you to do the steam demo? We want to see if it's a direct2drive issue. http://store.steampowered.com/app/41500/
Also the settings file should be under %app_data%/runic games/torchlight/settings.txt.
If you don't see it there, here is what it should have in it.viewtopic.php?f=24&t=1342
if that still doesn't work try this:
Change your settings.txt to windowed( which it should be ) and make the res like 640x480. Also might want to kick on OpenGL for testing.
Let us know.
PS: Also are you running in Vista or Win7?