Yes, that's the issue. No, there's no way around it. The problem is that said chip does not support hardware-based T&L, causing multicolored polygons and corrupt graphics.
EDIT: You might want to give a tool called 3DAnalyze a try and enable "emulate hardware T&L caps" or something similar. This supposedly forces your video card to handle all T&L stuff in software rather than hardware, mitigating the problem. Also, this bypass trick is done in software, so emulation speed may drop depending on the overall specs of your system.
Note that using 3DAnalyze is not a foolproof solution.