Install in the default directory to avoid problems (may not work with long file names)

Go under the install directory, search for MSVCRT20.DLL and delete it - this file was built for Win32s, a deprecated subset version of the win32 API specifically for Win16 (Windows 3.x) generation. Windows XP has it's own, compatible, version of this file.

With these instruction, the game appears to run perfectly. If you want, you can even run TOWER.EXE in Windows 95-compatible mode. See Windows XP documentation to do that.

AFAIK, with these same instructions, it should be compatible with Windows 2000 too.