Once you've downloaded from steam store page go to game's properties through steam. Select 'Beta' and opt for "legacypc". Wait for the game to update.

This legacypc version is the genuine version which came through physical disk copy (3 official updates included). The normal version on steam can be laggy, takes more time to load, cutscreen issues. I don't like the fancy effects which they tried to incorporate to make it look good. The interface looks badly put together and I like the game as it was originally intended to play back in 2004.

That said you can try playing through prologue and if everything seems fine to you then go ahead with normal version.

This mod is essential for playing the game in this age, it's been developed by community over 15 years. KOTOR 2 without this mod would not surpass KOTOR 1.

Normally to install a mod on steam you can just subscribe it from steam workshop, the mod wont be hard to find.
But steam workshop subscription does NOT work if you're playing through 'Beta (legacypc)' mode, for obvious reasons.

For this you need to manually download and install the mod from website:
https://deadlystream.com/files/file/578-tsl-restored-content-mod/

Once downloaded install it into 'Steam/ steamapps/ common/ Knights of the Old Republic II' folder.

Note: On some windows devices the installation process does not ask for location and installs the programme in 'programme files (x86)'. If this happens go to control panel and uninstall the programme and install it again. This time the windows won't redirect and ask you to select said file location.

To see if the programme is correctly installed. Start the game, below the games title on loading screen 'Restored Content Mod' should appear.

Bug Fix: This mod is a compilation of various bugfix mods put together with the intention of fixing all the known bugs with the last official patch of KOTOR 2.
https://deadlystream.com/files/file/1280-kotor-2-community-patch/

With the TSLRCM mod installed you should be set to go and play the game. Having said that, you can go a step further and install other small mods available. These contain dialogue changes, texture pack, cut-scenes etc
https://deadlystream.com/files/file/296-unofficial-tslrcm-tweak-pack/
https://deadlystream.com/files/file/810-jcs-handmaiden-sisters/
https://deadlystream.com/files/file/1228-kreias-fall-cutscene-in-game/

Combat Animation Fix: https://deadlystream.com/files/file/1141-jcs-supermodel-fix-for-k2/
Texture Pack: https://deadlystream.com/files/file/462-textures-improvement-project/
Character Overhaul: https://www.nexusmods.com/kotor2/mods/1060

One of the thing which was removed from game to push launch schedule was the last planet you visit in storyline 'M4-78'. This mod restores the planet and all the quests on it.

The mod is available on steam workshop if playing the game normally. But if playing on 'Beta (legacypc)' go to this website below to download the mod:
https://deadlystream.com/files/file/277-m4-78-enhancement-project/

It should automatically detect the correct folder of KOTOR II.

To check if the mod is correctly installed, start the game. At the start after obsidian's logo the M4-78 Enhancement Project's logo should appear.

If the game seem to glitch, cutscenes wont start or end properly etc... uncheck/ turn off the following 3 options.
Main menu-> options-> graphics-> advance options-> Turn off 'Frame buffer effects', 'soft shadow', 'v-sync'.

If you have lower end pc tune down Anisotropy & Anti-aliasing & Quality.