I had been wanting to replay Arthur's Knights: Tales of Chivalry and Arthur's Knights: Secrets of Merlin for quite some time, but all attempts to install it on a newer OS, including Windows XP with Service Pack 3 (with and without Virtual PC), had failed. The last time I was able to get both of these games working was when I had my Windows 98 computer, many years ago.
So, over the weekend my son and I installed Virtual PC 2007 on my Windows 7 computer, then installed Windows 98 SE as the guest on Virtual PC. We then installed the first Arthur's Knights and got as far as the main menu and noticed that hardware acceleration was checked by default. Assuming we needed to run the game in software mode, we tried to uncheck hardware acceleration and could not; for whatever reason, the game did not allow us to uncheck the box, and again when trying to get into the actual game, it crashed.
My son pondered this problem for a while and did some googling - and then he arrived at the solution. This was the key that led to success for us: he went into the BIOS and enabled virtualization, which was disabled by default. After having done this, we were then allowed to check a box in Virtual PC under File: Options, pertaining to enabling virtualization, which had previously been greyed out; then you can make sure that hardware virtualization is enabled in Settings afterwards. We then tried to run the game again and this time the game ran perfectly with hardware acceleration enabled! We then went on and installed the second Arthur's Knights game and were met with the same success.
I wanted to post this info in case it helps someone else. These games are notoriously difficult to get running properly, sometimes even on systems for which they were intended, and now they both run perfectly on Windows 7 in this virtual environment. I played the first Arthur's Knights game yesterday for about three hours and had no problems whatsoever.
One caveat is that not all processors support virtualization. If your processor has at least two cores, though, it should support virtualization.