With Blitz's help, we figured out the immediate problem.
The Direct2Drive version of SH3 has securom DRM in the EXE. The EXE size is 10MB instead of the normal ~1MB from a non DRM installation.
I purchased again from Amazon, and installed. The patcher recognized the EXE without issue on my system.
Lesson here for future purchases - do not buy from D2D!
I now own 3 copies of SH3. Amazon, Steam, and D2D. haha :P
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