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I've come up with a fix for getting AO or AE to run in XP. Windows XP has a backward compatibility feature that is not enabled by default. To enable this, right-click on the game icon and select Properties. At the top of the present window, there is a tab labeled "Compatibility." Select Compatibility mode and then select "Windows 95" from the drop-down list. Click okay, and then launch Oddworld!
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Hope it helps. Found it in a topic somewhere.