error 25 a critical error has ocurred while initializing direct3D

Hello @stratomay, follow Step 3 from the basic install guide and apply compatibility mode http://europebattle.net/d2/join
Running the game in window mode is recommended and I can see you were already able to successfully connect to the realm, however, if you wish to play in full screen then make sure you run the game via our newest launcher. I'm guessing the "Error 25" message pops up when you are trying to run the game in full screen and that is because you need to change the video modes to either glide 3dfx or ddraw.
As for not having the Expansion option upon creating a new character, I'd like to see a screenshot of that as I have never seen anything similar before.