Changing the machine option doesn't help. With VGA the game has the same graphics errors, and with CGA it correctly refuses to run (it's a VGA game). Other than these graphics errors the game seems to run perfectly.
I took some screenshots:
This is the opening screen. It works fine. The game cycles the palette during this screen to create the illusion of shifting red clouds.
This is the load game screen that appears next. As you can see the palette has been reset to the standard VGA 256-colour palette but the intro screen has not been erased.
This is the in-game screen. Nothing has been erased yet, everything is being drawn on top.
This is a character's inventory. It too is drawn on top of everything else.
Edit: I also tried it with CVS dosbox, same problem.