The Awakened won't play in Virtual PC because Virtual PC emulates the old S3 Trio video card from the 1990's that has only 8MB of video RAM and no acceleration. It doesn't meet the system requirements for The Awakened, which requires a minimum of 64MB video RAM.
You could try it in VMware Player or VirtualBox though. Those have experimental video acceleration that might work.
If you try compatibility mode in Windows 7, you should both install in compatibility mode (change compatibility of the Install/Setup file to an earlier version of Windows before running the installer) and also make sure compatibility is set to that earlier version of Windows.
There may also be a problem with the TAGES copy "protection," which may need an update.http://www.frogwares.com/forum/viewtopic.php?f=47&t=15