subtle: I give up. If you want to run this on Win 7 Home 32-bit, forget it. By all means, if you are some kind of masochist who wants to spend hours trying to get PG 2 to work on your machine, be my guest. But if you value your sanity, take my advice and choose life.
Right click on the file .exe. Choose "troubleshoot compaitiability." Click every single round button excpt the last one.
Make sure the game is set to run in WIN98/ME or Win95.
Click next. Click every single button except the last one.
Then click launch the game, or run, or whatever it says.
The game will open. The game will run in 256 colors and maybe a slightly smaller screen, but it'll run.
Second option. At the OP = if you still can't get the game to run do a google searcxh for "OPEN GENERAL". It's an updated version of PGII and it's free. And it's BUILT to work with Windows 7, 32 and 64 bit.
It's open source, uses the same engine, has tons of upgrades, and it's even more fun IMO.