It simply adds shadows, which are known to be a bit of a frame-rate killer in this series. There are a few workarounds, such as setting them to "aircraft only", and limiting the distance at which they're cast to just under a hundred meters (arrrrgh...more stuff to add to the KB)
As you've discovered, the latest patches place greater demands on your graphics adapter, due to the inclusion of volumetric clouds, and shaders for water and ground effects. You can turn these off in the game's options menu.
It did so in my case, and yes, it is always a good idea to uninstall an older gfx driver before updating to a newer one.
No! as I've mentioned before, you can always tune the graphics options to your preference, and the latest patches will not run without DX9.0c.
LOL...shadows, of course...