Welcome to the boards, NickCowan! May your blade soon slice straight and true.
Now, as for these problems...
First off, let me understand exactly where you are. You're getting past the opening splash screen (with the picture of the angel holding the sword) and getting to the first "town" screen, correct? Only you're not seeing the "town" in the middle of the screen? You can click on things, but just can't do anything in the town?
If that's the case, then you are probably in good luck. That part of the screen is in the .avi files, and I'm pretty sure it's just the townmsk.avi files. However, if you've already vdubbed those files and it's still misbehaving, I'd go ahead and vdub the townhub files as well.
I'd redo your virtual dubbing *and* download the old codec (from the link on the bottom of the first page in this thread). The townmsk files on my system are 32,780kb in size when vdubbed... if yours are in the neighborhood of 1500-200kb, they're still the originals.
You can also switch to graphical software mode. That is generally more forgiving than hardware mode. You can do that by clicking on that little computer in the corner of the game screen and moving to Graphics.
Defragging, shutting down other applications, fixing the size of virtual memory... those are standard good habits.
You might want to remove the game and reinstall it to ensure that you're starting from a clean install. I'm about to do that, since whenever I access my townmsk directory, XP throws up a memory violation error
I think I've got something bad in there...
Oh, and my problems increased once I went to SP2 and 9.0C. I can still play the game, but it crashes more frequently. It can be done... it's just a question of putting the proper things in order and sacrificing a small goat when necessary.
Or a Macintosh...
Give those a shot, and let me know what happens next. I'll see what else I can think of.