What did you change the compatibility settings to? Have you tried all the different options (even NT and win2k)? Sometimes those work, for some strange reason.
Also, I’m not sure it would help with this error, but try manually setting the computer to 640×480 resolution and 256 colors before you launch the game. To do this:
Go to Settings tab
Go to Adapter tab
Click List All Modes
Select 640×480 and 256 colors from the list, click Okay.