Much to my surprise Carmageddon works fine in normal mode but lets be candid here, it looks crap.
Also "Graphic mode setup.exe" Reporting Game not Installed for me too.
I have also read all the posts saying to edit certain files to improve resolutions etc and yet even though I have full Admin on my PC none of these edits will save.

anyone know how to fix this?
or why it is happening?

Or is it just that Carmageddon wont work in Win7 64bit except in vanilla install?

I even installed the Win95 patch to double check and no change

I can tell you it works perfect on 64b win7 as im playing it, and have done for horus since release.

You need to use the shortcut in the start menu to use the graphics setup.

Windows 95 patch vastly improves the looks, you need to find the start menu shortcut again Carmageddon(windows 95) launcher and it looks and runs perfect.

Actually, thats:
Start menu > Carmageddon > Carmageddon (Windows)

If you have installed the win95 patch.

And, I have Win7 64, and am running it that way perfectly fine.
Although, I did have to do some Nvidia settings for the game exe to get rid of artifacting bars appearing on the lower half of the screen.

I still think the 3DFX version through dosbox is the graphically superior one. This allows for higher resolutions, texture filtering, anti-aliasing, etc. through your video driver control panel.
Here are some screenshots showing the 3DFX version.

As noted earlier, be sure to run the graphic mode setup shortcut from the start menu and set your desired resolution and aspect ratio in the advanced tab before launching the hardware version of Carmageddon.

Since this game's multiplayer used IPX networking it is much easier to use dosbox when playing on a LAN or over the internet. With the Win95 version, zero-configuration virtual private network software like Hamachi must be used when playing over the internet. Older IPX multiplayer games are much easier to setup in dosbox and allow for multiplayer across the internet in addition to LAN.

Works very well in Windows 7 64 bit. I also prefer the Windows version over the Dosbox version, as I am able to use my Xbox controller.