Not that it makes a difference (so I've got it straight), your DVD is version 1.2. Guess they stamped out DVD versions of 1.2 for a while.
I realize your familiar with Vista OS, but I'm wondering how much of a difference is there between Vista and Win7 with the file "Properties"? Below is the sh4.exe file Properties on a Vista OS:
If you wanted to have the game run in a different mode other than Vista (which you didn't need to do for Vista....the game runs fine as-is), you would check mark the above "Compatibility mode" menu and choose one of the different types....like Windows XP (Service Pack 2). Also, check mark the "Run this program as an Administrator". You would click "Apply" to make it take effect, then close out of that tab.
I'm wondering if you've gone to the "Security" tab and have the following set?
Your Win7 menu may look different, but there should still be some resemblance. Your "Administrators xxxxxx" should have "Full Control" check marked under the "Allow" heading. If not, make it so, then click "Apply" to set the permission.
I'm not a Win7 user, so I'm unable to give you the exact advice....or show you exactly what your menu's should look like. Maybe someone else can help you with the details. But, I'm figuring there is something simple that's keeping your game from running.