It can be made to work but it's a bit of a pain.

1. During install SKIP the Sierra system tests or you'll get a divide by zero error. I also created a shortcut to setup and set it to Win95 compatiblity mode but I'm not sure how necessary that was.

2. Once the game is installed, you'll need to edit resource.win and change leadSubmits = 4 to leadSubmits = 6. (Per Sierra's KB) You can also enable useDirectDraw if you wish. DirectSound doesn't seem to work. (If you copy the 'large' resource files to the installation directory you can update the paths in this file as well.)

3. Edit the shortcut installed to use Compatiblity mode. You want to use Windows 95, 256 colors and 640x480 resolution. (The game uses palette effects so the 256 mode will ensure those will work.)

NOTE: If you want to manually make the shortcut for the game:
We want to run "SIERW5.EXE" with the "RESOURCE.WIN" argument. Include full pathnames for both.

NOTE: I haven't played the entire game all the way through but I went a few scenes in and it seems to be fine. Save and Load are working as well. Drive is NTFS.

My XP installation had sound problems causing an error with sierw5.exe. I solved it by changing this entry in RESOURCE.WIN in the lsl7 installation dir:

useDirectSound = true

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There is another problem on WINDOWS XP, which is not described in all 2000/XP solution, that i found.

On some configurations the game can freeze after first scene (when Larry escapes from bed) - so-called SIERW5.EXE error.

AppName: sierw5.exe
AppVer: 0.0.0.0
ModName: acgenral.dll
ModVer:5.1.2600.3163
Offset: 0001fae2

And, if you replace savegame from dos version, game will be freezing in all game scenes after 2-3 seconds of playing background music.

Almost eight hours of killed time allowed me to find a problem point. It was with sound config.

Heres solution:

You need to edit file RESOURCE.WIN in game directory.

Change the string

useDirectSound = false

to

useDirectSound = true

and enjoy.