1) This all pretty much deprecated. DirectX is now on 9 and seems to crash Machines if you try to connect over TCP/IP. If you are playing on the Zone then make sure you have the latest version of DirectX (DirectPlay). Version 7 has now been released and is the recommended download for Win95 and Win98 users. Previous version was DirectPlay 6.1a and may also be downloaded from the developer area.
2) Software compression is generally a bad thing for most of the data sent in Machines. The data is highly random and binary in nature, turn off any compression on modem.
3) Sometimes Machines tries to send too much data at once (it was written to try not to of course) - reducing the maximum packets per second, maximum bytes per second can sometimes help. These are set in the registry under HKEY_LOCAL_MACHINE/Software/Acclaim Entertainment/Machines/Network. Max packets per second is normally set to 4 - setting it to 3 may well help - failing that setting it to 2 or 1 will prevent modems overloading but you will get lag - lots of it. If you are experiencing problems then try setting it to 3. Note that there are different settings for IPX LAN games, also note that it really helps if everybody in the game has the same value. The following .reg files will set it to 3 and 4. Download regfiles.zip; I would ALWAYS recomend reading files which alter the registry before running them. To run them download the file, and double click it in Windows Explorer or run regedit and import..
4) Alternatively to the above, you can try setting the packets per second higher. This results in AI updates going through quicker and very busy situations don't cause problems. A value of 5 will normally be pretty good - especially with two player games. Certain levels, such as the siege will probably require you to do this.
5) Games dropping connectivity when somebody goes into 1st person. Unfortunately the best solution for this is to prevent 1st person. It does take away a certain element of the game, but its probably the safest thing to do. Alternatively, if you have a stable connection, try the above point.
6) Do I need to download the patched version, it seems rather large? you do - it has specific fixes to allieviate problems with internet games. It also allows german lanaguage users to play multiplayer - it was a bit of dodgy code which really shouldn't have made it into the final release. (Not my code, I hasten to add!)