Ideally, Heroes 5 should run on Windows 7 and 8 without any issues, at least that's how it works for me with Tribes of the East 3.1; it runs without any compatibility modes, only with the d3d9 fix, otherwise the textures will be blurry. As for the virtual XP mode available in Windows 7, the video driver operates in a primitive mode, without 3D acceleration, so it's not suitable for games. The error in this mode is likely due to the limited capabilities of the virtual machine and is not related to an error in Windows 7 itself. I'm quite sure that the hardware isn't the issue here, and on the same computer, if you install XP, the game will run. However, the problem lies in getting it to launch in Windows 7. You can also try running dxdiag through the Start menu, then save the report file (save all information) and attach it to a message here. It might shed some light on the issue, but I'm already doubtful after so many attempts.