Just drop that in KOTOR 2's Steam App folder and you should be good to go. Simply go here to download KOTOR 2's restored content mod, which - after three years of painstaking excavation work - is finally complete. So I'm going to show you how to turn it into the game it should've been all along. But that was then, and now - as of today - KOTOR 2's finally on Steam.
Unfortunately, a lot of people skipped it due to BioWare's lack of involvement, bugginess, and an ending that sort of, well, didn't exist. I mean, BioWare's original Death Star laser blast into a rather bland Star Wars gaming scene is a classic for a reason, but KOTOR 2 - for all its flaws - showed sparkling glints of actual brilliance. Vaguely controversial statement time! I far prefer Star Wars: Knights of the Old Republic 2 to KOTOR 1.