Well there I go making a liar out of myself. So after posting the last reply I decided to go back and do more trouble shooting with my video card. After a few tweaks it seems to be working running under WinEQ2 now. These are the settings I changed:
I set the default image settings for 3D to Quality (originally set to application controlled)
then under manage 3d setting:
the 2 options you can't see are:
Triple Buffering: Off
Vertical Sync: Use the 3D application setting
then I checked the program settings for eq2 and made sure they were all set for "Use global setting"
and the viola, specular lighting works again under WinEQ2.
Hope this helps you fix your issue.