I think you're right about the video.cfg file, I just cut 'n paste the AH directory from HDD to CD to HDD every upgrade.
I dunno what to say, but I know I've had this problem before and it was because my monitor wasn't properly installed- used standard drivers, then changed to monitor specific drivers and it fixed it.
This is my video7.cfg:
1024,Width
768,Height
32,ColorDebth
1,DeviceCnt
NVIDIA GeForce4 Ti 4200 \ Microsoft Direct3D Hardware acceleration through Direct3D HAL
0,UseZBuffer
0,DisableTripleBuffer
0,MaxFPS
0,MipMapEnabled
1,DisablePalettizedTextures
0,FastVertexProccessing
-SW