try running the setup file direct rather then auto booting, you may get rainbow colours, but once you got the thing installed, go into options then at the top of it, there is sfall, / high res button, go to the sfall tab, and enable full screen, (the high def tab will no longer work) but reboot, and the game will run fine in normal colours, but the game should install even if it looks funny, as the game uses 16bit graphics, which vista and 7 doesn't really support, (but there are workarounds) but with sfall enabled when you have the game running is the best thing,
if the game still doesn't install, try the setup in compatibly modes, and reduce it to 256 colours,, but again, double click the setup file directly in the disk, (if your copy is the original copy) other versions, I don't know