Hey,
Just updating. Got the problem solved. As a reminder to everyone who goes through the installation, remember to restart your computer between the major phases of installation.
I uninstalled everything, cleared registry, restarted computer and went through the steps again and now it works as intended.
Another hint - SET YOUR GRAPHICS SETTINGS TO WHAT YOU WANT AFTER INSTALLING THE GAME! After updating the game my resolution setting was greyed out and stuck at 800x600 so I had to fix this stuff through regedit. My menu is still ugly with black bars at both left and right but the game and cinematics are fine so it doesn't matter.