I was feeling nostalgic (turns out I'm not alone) what with Diablo III announced and all so I wanted to run thru the old dungeons of D2 one more time. Turns out this is a no can do with 10.5.3 and NVIDIA hardware. The 256 color mode has been removed from the driver and this causes the game to just crash before it even starts.
There is a simple solution available if your prepared to hack around with your kexts a bit. By restoring the NVIDIA drivers from the Leopard Graphics Update 1.0 package you can go back to an older version of the driver that supported 256 colors.
I was a bit scared but I just did this myself and I can report success after only one false start (bottom of thread as Dreamer3). The thread also has the full instructions but if anyone needs tips you can ping me on IRC.