I have had similar problems playing old games and applications on my latest re-install of winxp, strangly didn't have these problems the first time i installed it, and I don't have problems running many of them on another p.c with windows xp on. So it really is a mystery. However the error message i get is different, something to do with the MS-dos 16 bit subsystem. I have been told it's possibly a problem with either of the following, * Config.nt * Autoexec.nt or* Command.com. Been given some fixes but havn't been able to get any to work.
The dual boot system is definately a way to go if your desperate to play old games, but instead of having two operating systems on different partitions on the same disk i have installed windows 98 onto a second hard drive. I then use bios to change the boot sequence to whichever drive has the operating system i want. Suppose it would be fairly easy to set up a program which allows boot selection, there are quite a few about.