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On Windows 2000 & XP you can run older programs in compatibility mode. Go into your windows explorer and follow the path C:\Program Files\3DO\Might & Magic VII and find the file called MM7.exe Right click on the exe and select Properties from the drop down. In the properties dialog box that pops up, there should be a tab that says compatability. There you can choose to run the program in Windows 95 or Windows 98 mode. Once you switch the mode, create a shortcut from your MM7.exe and always start your game from the shortcut. Trying to run it from the CD starting prompt will cause the same error. I had the same problem you were when I tried to run MM7 on my Windows XP machine. Switching the compatibility mode solved the issue.
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