Some windows update or driver update must have killed its ability to run. The game was coded in assembly with minimal C bindings to interface with the OS, so the ability to run it on newer operating systems, even in compatibility mode, will be fragile at best. That it ran at all on Win 7 is a testament to how stable a platform Windows is.
Google says that the answer is to set compatibility to 95/98 mode, disable visual themes, disable desktop composition and then run as administrator, but I'm assuming you've done that already. If that's not working, then there's not much I can do for you.
Apparently the GOG version of the game will run just fine on Windows 7.