I had the same issue as well. Tried all fix, but to no avail. Windows 98 compatibily mode do work, but the game's performance detoriated as you play. I found this fix on accident when Fraps crashed for no reason, and suddenly I'm able to launch the game. I tested it a few times, and I can safely say that Fraps' the one at fault here.

So if you happened to have Fraps running, just close it and try again. I'm using Fraps version 3.5.99 if any of you wondering.

And quick note to self. Never, ever, buy console port games on Steam.