My XP installation had sound problems causing an error with sierw5.exe. I solved it by changing this entry in RESOURCE.WIN in the lsl7 installation dir:

useDirectSound = true

There is another problem on WINDOWS XP, which is not described in all 2000/XP solution, that i found.

On some configurations the game can freeze after first scene (when Larry escapes from bed) - so-called SIERW5.EXE error.

AppName: sierw5.exe
AppVer: 0.0.0.0
ModName: acgenral.dll
ModVer:5.1.2600.3163
Offset: 0001fae2

And, if you replace savegame from dos version, game will be freezing in all game scenes after 2-3 seconds of playing background music.

Almost eight hours of killed time allowed me to find a problem point. It was with sound config.

Heres solution:

You need to edit file RESOURCE.WIN in game directory.

Change the string

useDirectSound = false

to

useDirectSound = true

and enjoy.