Graphics can depend on many factors
As far as the D3D options are concerned, UT sets up graphics options depending on the video card you own. Some video cards don't support specific D3D options and sometimes those options will need a heavy duty CPU & video card to run well.
As far as the options:
1) Volumetric Lighting -- think of light shining through a fog bank... Volumetric
lighting is system intensive, and is contained within a volume. Notice that a spotlight shining through fog looks like a 'cone of light'.
I'm pretty sure this is only turned on if you have a good CPU & graphics card.
2) VertexFog - There are different ways to produce fog in computer graphics, some video cards are faster than others on different types of fog calculations.
3) UseVSync - Some video cards ( I think Voodoo2's) make use of Vertical Sync... (has to do with the video card & monitor)
4) UseAGPTextures - depends on the video card. Can increase performance.
5) UseTrillinear - Trillinear filtering, supported on certain video cards.
6) UseVideoMemoryVB - not exactly sure, but it has to do with the video memory on the video card... Probably used for specific video cards.
As far as the 'skyboxes'... The alpha channel of a texture is used for texture blending... a texture can go from completely transparent to completely viewable. However, the alpha channel is 'better' with a higher-bit color depth.
UT supports 16-bit and 32-bit color depths; 32-bit has a larger alpha or transparency channel than 16-bit... and the 'transparency' problems can occur like you explained in 16-bit.
Also, a video cards drivers, if the blending funcitons are buggy, can easily produce the blending anomalies that you see.
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dsn
(Yes.. a little technical.. but its hard to explain this otherwise.)