I activated hardware for the video settings and launched the game.
It worked fine with much better edges and less pixelated graphics.

Then this morning, all of a sudden, the intro video doesn't play beyond the 3DO logo, and all other videos doesn't play either. Even if I start a new game; just the sound. I can still press Escape to quit the "video" and play normally though.

Any ideas? Oh btw, I use ATI 5870 with the 10.7 drivers if that matters.

Hardware acceleration is known to cause issues with in-game movies.
I found a workaround for M&M 8, you might try and see if it works for 7 as well. Here.
At the moment I cannot test it myself.

I set the D3D Device to 1, while Use D3D already had the value 1. MM7 doesn't appear to have a VideoQ entry in the registry though.

The problem still persists :/ Thanks anyway.

Yes, it did, thank you very much! Have played for about 30 minutes with this setting now, and haven't noticed any changes to gameplay. I'll update if I notice anything.

I do however have a final question. Different "versions" of enemies have some difference in color, like: Skeleton has green "kilt", Skeleton Warrior has a blue "kilt" and the Skeleton Lord has i red "kilt". But when hardware acceleration is turned on, the whole creature is colored, instead of just the details(like the lightning rats in the picture). Any way to resolve this?
It's not a huge thing, but it sort of kills off some of the immersion :p

[EDIT: There are only the two strongest "versions" that's fully colored]

[EDIT 2, UPDATE: As for the 2dacceloff set to 1, I've now played quite a few hours noticing no gameplay issues or other game related problems.]

That's how it's supposed to be, I think. But I'll have a look.

Thanks. I doubt it's supposed to be like that, because when you right click an enemy for their information, the correct color shows in the litte window beside the text.
Like the Royal Griffin; which is dark grey with purple feathers, shows up with it's correct color by right clicking it; light gray with royal red colored feathers.

Can't you change it through in-game options? There was some setting regarding color-coded enemies.
(Controls->Video Options->Tinting)

Nah, it didn't work either :/

[EDIT: I did the classic trick of restarting the game, and it worked :) Thanks!]

Hopefully you won't run into any more problems.
Enjoy the game :)

Speaking of hardware accelerated mode...

Has anyone ever found a way to have the non-blurry sprites from non-accelerated mode WITH the colored lights and blood splats of accelerated mode? It's not really bothering me in M&M8 but they were REALLY blurry in 7. And I'd just turn off acceleration, but some of the lighting is pretty neat.

It is my understanding that the blurriness of the sprites has to do with the anti-aliasing (correct me if I'm wrong), and not different sprites. As you may have noticed, almost every surface has a smoother edge with hardware acceleration mode enabled.
What I'm trying to say, is that I believe it's your card, or rather, the drivers that cause the blurriness. Try adjusting the 3D settings in your video card driver, for example the AA method.

I have a 945GMA*. It was also pretty blurry on my desktop which had an ATI Radeon X600*.

Anyway, if it IS antialisiang doing it, I wonder if it'd just be possible to rip the sprites, touch them up in an art program, and then re-import them into the game? I really have no idea how the files and resources are structured, but that could be a fun community modding project and by fun I mean tedious but probably totally worth it.

(*HI MY NAME IS ALEX, WHAT IS GOOD HARDWARE?)

possible? quite.
Probable? not really.

Out of curiosity, could you post a screenshot of that sprites? I didn't notice anything bad with them in my game.