Alistair, I guess that I will have to be direct since you are really missing the point here: Larry 7 runs fine on Windows XP and 2000 using compatibility mode, I (and many others) have completed the game this way and can assure you that it works fine. It may surprise you, but this really is one of those rare cases where compatibility mode does work.
You seem to be flaming solutions without even having tried them yourself. For instance Klaus’ comment earlier in this thread about changing the Windows XP theme to classic, if you had tried it then you would have known that it solves the installation problems, but instead you decide to flame it because you “fail to see how this would achieve anything”. If you do not know what you are talking about then you should not “contribute” to the thread.
I also found your comment about eBay sellers (which I feel was directed at me) really ignorant. As an eBay seller AND a classic game enthusiast, I always make sure that I know how to run the games on Windows XP before selling them so that I can provide my buyers with some technical support. This means that if a game requires VDMSound or DOSBox to run on XP I advise to use those tools, but if a game only requires compatibility mode then I advise to use that. In the case of Larry 7 only compatibility mode is required, if hundreds of my customers (and thousands of people visiting my site) have tried it and find it (judging from all the email that I get) to be a good solution, then who are you to complain?