Hi all,
I'm new here and wanted to thank everyone that contributed to this thread. I'm running on windows 7 also now, with a resolution of 1920x1200. I had an old copy from when SH3 was first released that I wanted to play again.
Just to reiterate for anyone else that might still be having problems with the resolution on windows 7, because this is something I missed the first few times trying these solutions for some reason, even though it has been repeated several times by people here:
Even though you want to run the game at a higher resolution like 1920x1200, you still have to set your windows desktop resolution to at least 1600x1200 in order for the game to start without errors. It will change the resolution up to what you want as long as you set it correctly in the cfg files as stated in this thread. Seems the key for me was finally getting it through my thick skull that I needed to start in a 4:3 aspect ratio, hehe.
Thanks again all!