jinxvorheeze: Found this thread while looking for the answer to the OP's question, and it looks like he was also able to get it fixed, but I thought I'd toss in how I fixed it, since I also fixed a couple other issues too.
Running the in-folder "setup-ddrawfix.exe" and telling it to force DirectDraw, then setting the "iwd2.exe" program itself to run in Windows XP SP3 compatibility mode. This allowed it to launch correctly, without the black box in the corner. Next problem was the game crashed when I made a party, and I fixed that by going to the included "Config.exe" file and set the "General, Graphics, Audio" all the way up, on the "Game" tab I set "Cache Options -> Cache Size" to '999MB', and "AI Options -> Frame Rate" to '30 AI Updates per Second', and on the "Graphics" Tab I set the color to 32-bit.
All of my previous crashing and visual issues went away, and the game runs good. Hope this helps someone else.
I am having the issue of it crashing after making a party. I am not really a technical expert. Is there a place I can find an idiot's guide to the solution you posted?