Not too sure if this could be it, but maybe you need to run the game in XP mode, which isn't available unless you have Windows 7 Professional and up (not sure which version you have).
XP Mode isn't really meant to run old games. It's primary purpose is to allow businesses to run software that would normally crash in Win 7.
Additionally, I believe I've read somewhere that most graphic DirectX functions are not enabled in XP Mode. It's something to consider and to research if you want to go down this route.