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http://blog.gib.me/2008/11/30/fixing-titan-quest-on-steam/
{LINK REMOVED}http://www.mediafire.com/download/txjqymyzymj/Engine.zip
First thread has a zip file that you replace with the one in the immortal throne folder.
Just go to library and right click on Titan Quest and then go to properties, local files and chose the option that he controls game cache. Normally that should solve the problem.
When installing titan quest choose not to have him put a shortcut or icon on desktop. Chose it only when you get to installing Immortal Throne (the addon) -> titan quest icon lets you play the game unenhanced. Always play via the immortal throne icon. (or click on immortal throne and then 'play' via library)