Tried the same thing, and it's not helping me. Similar situation, Windows 7 (home), SP1, game just stops responding. Tried not touching the action key until the text is finished, and it still glitched out.

I also had everything set on compatibility mode with windows 95.
I'm also using a netbook that could effect the game though, not entirely sure.

Edit: Windows 7 Starter is my OS

Has anyone had success using the VirtualPC for Win7 with this game?

http://www.microsoft.com/windows/virtual-pc/download.aspx

It seems to happen less if I play the game windowed vs fullscreen. I'm now probably four hours or more into the game and have only had the input die on me three or four times since.

Happens on Windows 8 too. Seems to be a bug with the game, not the version of the OS.

Well, thing is, that doesn't happen on my laptop which is 64bit win7, but that's getting off topic...

I just tried this game and I still get the action key not responding problems. It's sad because it seems like it might be a great game if they just fix this bug - it's a deal breaker... we can't even get past the opening sequence.

Same here, gamepad fails after the character is asked to leave the boat. Worse is that JoyToKey also is useless while the game is running. Weird.

I'm running Windows 7 and using a Logitech gamepad.

I know how to fix it

1. Go. To. Fix
2 change your buttons and then it works
Hopefully that was what you needed! !!
:D

How do you do that?

I've got Windows 7 Ultimate 64 bit desktop PC.
The only issues I've had through playing for about 10-12 hours so far (about 45% completed):
1. Crashed once on exit (no save loss of source since it only saves on save points)
2. Crashed once in this built-in game in the city, in the HOLOSCENE or whatever this place is called.

Great game, pity that quite a few people out there are having problems, which stop them from enjoying it.
Even more pity that GOG does not seem to pay much attention to it. On the other hand, it is FREE game, so maybe one of these is the reason for another.

Go to the installation directory of the game, it should be C:\GOG Games\Treasure Adventure Game

Then double click on setup.exe and choose smaller scaling. Doing so will increase the performance of the game.
It seems that, if the game starts to run too slow, input is being received incorrectly and action key stops responding.

Then close setup application and run the game again.

P.S.

You can use your operating system screen zoom capabilities. To "simulate" scaling and to view game window at decent size.