[Nitro Cruiser]

UPDATE: Some additional info guys if you are still having the issue with the colorful, fuzzy palette after performing the steps in the OP. Try this:

Using Windows 7. After you have D3DWindower set up, but prior to launching the game executable. Right click on any open area on your desktop and open "Screen Resolution" box. DO NOT change and settings and DO NOT minimize the box, just let it up on the screen. Go ahead and launch the game executable in D3DWindower. Close the "Screen Resolution" dialog box after your finished playing the game.

Not sure why this works, but it does for some. You may even want to try this without D3DWindower, it may work for you (it didn't on my test rig)besides I like how D3DWindower makes it fill my screen.

Thanks for the sticky DRG! Anything to keep you guys focused on the big picture, while we users can sweat the small stuff and try to help each other out. Still looking for feedback positive or negative on this solution from those experiencing Win7 issues. Thanks.