CONFIRMED FIX! (and this one is really bizarre.)
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A recap
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Running my standalone, retail copy of UT3 ran great at a continuous 65-90fps. However, after adding UT3 to the steam games list and launching it via steam, it continually dropped to as low as 28fps. I couldn't find a workaround, so I removed UT3 from the steam games list and went back to just launching it when steam wasn't running. Now that they've allowed you to activate a retail copy of UT3 with steam, I thought I'd give it another shot, but encountered the same problem (ie big overall framerate hit when launching via steam games list.)
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How I found the culprit
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1. Initially I thought it was some video issue with the shift+tab steam community overlay thing. So I disabled the overlay as suggested in this thread, but that didn't work.
2. I figured it might be steam running in the background gobbling up resources, and tried running steam with low process priority as suggested in this thread, but that didn't work either.
3. Finally, out of curiosity, I decided to see if I could still run UT3 while steam is NOT running (even though I just activated it with steam). So I closed steam, and manually launched "C:\program files\steam\steamapps\common\unreal tournament 3\binaries\UT3.exe". When UT3 started loading up, I noticed that it launched the steam client as well. "Well, so much for that idea", I thought... but once UT3 finished loading, it was running as fast as ever (65-90fps continuously)!
The massive framerate hit seems to be related to launching the game through the steam games list! It seems weird, but I've tested it out and the following is 100% reproducable:
A. If steam is running, and I launch UT3.exe manually (by running "C:\program files\steam\steamapps\common\unreal tournament 3\binaries\UT3.exe"), the game runs fine.
B. If steam is not running, and I launch UT3.exe manually (by running "C:\program files\steam\steamapps\common\unreal tournament 3\binaries\UT3.exe" which, in turn, starts steam), the game runs fine.
C. If steam is running, and I launch UT3 by double-clicking the game in the steam games list, the game runs at the dramatically reduced framerate.
Does anyone have any idea why this might be? I thought that when you launch something from the steam games list it just launches the main game executable- is this not the case? Does anyone know what difference it might make if you run a game by launching the executable via windows explorer, as opposed to launching it via the steam games list?
Anyway, there's my workaround... weird, huh?