| Personally I notice no difference between MIP Mapping being enabled or disabled. Personally I disabled it and enable ansitrophic filtering (8X) in Control Panel > Advanced > 3D tab.
Also I don't notice any difference between having bump mapping enabled or disabled in most areas. I would leave it disabled for the sake for performance, you don't lose much in terms of image quality.
Textures, I have them compressed. I think compressing them helps performance without sacrificing much image quality.
Overlay resolution determines the actual screen resolution and how UI elements are scaled on the screen, but not 3D resolution. A higher resolution will look better without probably impacting performance too much, but if the background resolution is set low, the game will still look pretty bad. I would set it at 1024x768 or higher, based mostly on what kind of monitor you have... I can't set mine higher because then the refresh rate drops to about 60 Hz and it causes eyestrain... also on a 17" monitor, going to a much higher resolution will cause some of the UI elements to become smaller than I like. On a better/larger monitor, I would set it higher.
Background resolution determines what how the game is actually rendered. The higher you set this, the better the game will look, but it will impact performance. That said, with a RADEON 9800 Pro, you should be fine to set it at the maximum resolution that the config utility allows (1024x1024). I can play just fine at that resolution with a RADEON 9700 Pro. It is possible to do a registry hack to bump up the resolution even further, but whether or not it's worth the increasing hit in performance you're likely to see by setting it higher is for you to decide.
In game there are things you can fiddle with to affect performance, of course. Clipping plane is something you can quickly and easily change if the performance in an area is too sluggish. Also, with my old graphics card, weather effects really produced horrible performance, but the 9700 Pro doesn't seem to sweat it at all. High quality shadows are cool, but I notice it does impact performance rather negatively in areas with a lot of people, NPCs and creatures, so I turn it on unless the area is getting crowded, then turn them down to normal. | 
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