I have recently installed Theme Hospital on Windows 7 for a bit of nostalgia!
I have installed the game successfully and it appears to be running okay, but the picture is really bad. It looks like I am running the game with the wrong resolution so it is pixelated with random colours. I have tried running it with different screen resolutions and different compatibility modes but it has not made any difference.
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That issue is a common one in many old games running in Windows 7, like Starcraft and Age of Empires 2. The fix mentioned in this article for fixing this issue in Age of Empires 2 should fix your Theme Hospital issue too (the article is pointing to Age of Empires 2's .EXE file, just replace it with Theme Hospital's .EXE file name): http://www.neoseeker.com/forums/2359/t1444258-wind...
Search 'Age of Empires 2 Windows 7 fix' for more info on this fix (to see other articles, Youtube videos, etc.).
If that fails, or as an alternative, try this reimplementation of the Theme Hospital game engine, designed for modern Operating Systems like Windows 7 and Vista (and should work better than vanilla Theme Hospital in Vista/Windows 7 [requires the original Theme Hospital be installed as it uses the original game's resources]):
CorsixTH
https://code.google.com/p/corsix-th/
Another thing to make sure is: that you have the latest version of DirectX 9.0c, the June 2010 update (needed by old games, including Theme Hospital). As far as I know, the components of the latest version of DirectX 9 is not included by default with Vista and Windows 7 (even if DirectX 10 or DirectX 11 is already installed).
You can get it here:
Standalone Installer
http://www.filehippo.com/download_directx/
Web Installer
http://www.microsoft.com/downloads/details.aspx?fa...
When installing old games like Theme Hospital in Windows Vista or 7, do not install in the 'Program Files' folder. Vista and Windows 7 have put restrictions on access to the 'Program Files' or 'Program Files (x86)' folder (this where 64 bit Windows installs 32 bit programs), which may cause incompatibilities with older games. I personally install old games in the 'C:\Games\NameOfGameWithoutSpaces' folder (some old games might have issues if there are spaces in the game directory name).
Other general tips for installing and playing old games like Theme Hospital:
Also, make sure you are using the latest version of the game you are playing as newer updates might include performance and compatibility improvements on newer OSes asides from game bug fixes.
I search for game updates at this website: http://patches-scrolls.de/
If it's not there, try using your favorite search engine.
If your using windows 7 64 bit, simply put the CD/DVD in your drive, (or mount the disk image) go to computer, click on the CD drive, right click and choose open, search for a file called setup, or install and go to proprieties, the go to compatibility and choose windows XP or other OS that its compatible with.