Launching this game leaves me with a half-second of a window trying to pop up followed by nothing.
Per the troubleshooting directions I launch the executable 'HostileSetup.exe' However both options in the following menu - start the game or set up the hardware - are grayed out for me.
I'm running XP SP3 and the latest Nvidia WHQL drivers with two 8800GTs (using just one, in non-SLI mode).

It's supposed to pop-up a "choose your resolution / graphics device / sound device" window prior to displaying the window with the "Play Hostile Waters" and "Hardware Setup" buttons that are greyed out. The first time I installed, the same thing happened to me, no "Choose your resolution" window, just the main launcher with both options other than quit greyed out. I assumed it was because it was incompatible with (Vista-alike) Windows Server 2008 x64 running non-WHQL drivers and tried it on my XP partition with the same results, but then reinstalling it under XP so the first launch of the game was under XP did the trick, and I got the Hardware Setup window.
Clearly it's not the case that your OS is incompatible, but maybe it's possible that the first time Hardware Setup runs (automatically when you launch the game the first time), it's messing up the installation, and reinstalling will give you another chance to see if the hardware setup will run properly?

im using vista, and the first time i ran the game i got the UAC prompt to run it as administrator... so it might need elevated privileges to run the setup... that may apply as well under XP if your account isnt running as administrator...

Thanks for the responses.
I am the only user and thus the "computer administrator" under XP, but I'll try reinstalling and seeing what happens. Meanwhile I'll contact tech support.

Did you get an error message about DirectDraw failure or something like that? I did. Afterwards, I couldn't click either button to setup or play the game.
It was an easy fix, though-I just had to set HostileSetup.exe to Windows 98 compatibility mode. Right-click the executable, click "Properties" in the context menu, click the "Compatibility" tab at the top of the window that just opened, click the checkbox at the top with "Run this program in compatibility mode for:" next to it, and select "Windows 98 / Windows ME" in the drop-down box just below.
Hopefully, this fixes your problem.

Actually, I just re-downloaded it and installed it to a different hard drive (not sure if that part really mattered). When I hit launch, the video config screen came up and now the game boots up without a problem.
Very strange that re-downloading the file apparently fixed it.

Imagine the grief you would have had trying to solve this with many othr game download retail operations! thank G.O.D. for G.O.G!

I encountered the same problem and yes, you HAVE TO start "hostilesetup.exe" first. If you didn't, simply de-install and re-install the game.