The reason I asked about folder path and number of bits is because you've said your system is Win7 64-bit.
The Win7 part of it is the install path. Program Files and Program Files (x86) are protected folders so installing games to those folders can cause some issues. It's something to do with UAC and DEP security measures to prevent unauthorised alteration of these folders, and a common issue is save games and settings files not being saved (or being saved in your users folder). My recommendation is to install games into your own unprotected folder (I use C:\Games\...).
As for the 64-bit part, I know that UT2K4 has two different game executables, a 32-bit exe and a 64-bit exe (for newer 64-bit OSes). So partly I wanted to make sure you hadn't got it mixed up or were trying something that was unofficial like a mod.
But anyway, as the 32-bit switch you are referring to is to do with colour depth, am I therefore correct in assuming that 16-bit colour depth works but 32-bit doesn't? If this is the case, then it points at a graphics issue.
If it is a graphics issue then I'd recommend getting the game into a state where it loads to the main menu first, even if that is 16-bit. Once you've got that working, access the game's console (by pressing either ' or TAB, the former opens a console window the latter just gives a text prompt, but both work) and type in the word:
preferences
followed by pressing ENTER.
This will then return you to Windows (with the game running in a background window) and present you with the advanced settings menu. Play around with the graphics settings here, such as renderer, resolution, and the numerous other graphics settings. It may be that changing the renderer will sort it for you. If you are using OpenGL change it to Direct3D and vice versa. If you Google around you'll also find some user created renderers (e.g. DirectX10) that you can try using. However, your mileage may vary with these.
Once you've made your changes in the advances preferences window, close it and the game will maximize once more with your advanced settings being used.
If that still fails, you can look at your Unreal.ini file in the game's folder (it might be somewhere in your Users folder if you have installed into Program Files). Maybe you could post your Unreal.ini file here if you still can't get it working?
Let us know how you get on.
EDIT: In fact, quickly Googling around I found this:
http://forums.steampowered.com/forums/showthread.php?t=1406114 Looks like someone else with your issue, and also someone else with the delay starting issue that I have with the game. There is a fix provided that helps some with your issue, so maybe it'll help you too? Let us know. :)
