On my site you can find an installer for Larry 7 to install the game on Windows 2000 and XP. The installer can install the entire game to hard disk (so you don’t need the CD-ROM when playing) and automatically sets all compatibility settings. You can find it here:
http://home.planet.nl/~harms646/larry7.html
There are also step by step instructions for those that want to do a manual installation.