I too have XP (Professional) and a few weeks ago bought B-17 from the budget bin for about A$20. I installed it and when I tried to run it I got pretty much the same as you.
I found that when you install it, for some reason if you right click on the installed B-17 icon, go to "Properties" and check the target folder, it's actually pointing to the "Install.exe" file. Why, I do not know.
Simply change this to "Game.exe" and Bob's your uncle! This may be similar to what you did.
Also, before you install it, open explorer and right click on the install program. Go to properties, then click the "Compatibility" tab, and tell it to "pretend" it's Win95 or Win98/2000. I have found that some of my older games/sims I have were easily fixed that way. Also try it on the "game.exe" file itself. From memory I don't think I needed to do this, but if all else fails it's worth a try.
I have had no problems running it in higher resolutions, and everything seems OK for the most part. It could be your graphics card (maybe??). I am running a GeForce2 MX400, and it looks SWEEET The visuals really are quite nice in a lot of places, and it holds up well, considering it's a few years old now. I dont know if having a PIV 1.9GHz with 1024MB RAM helps (overkill really....).
One problem I have had is if I do a mission as a fighter, when I am close in and dogfighting, the enemy aircraft "ghosts", and it appears that there are actually two of them, with one closely overlapping the other and flickering. Quite distracting to say the least... who do I aim at???
Let me know if you have that problem too (for that matter, does anyone else out there have that problem??). In the long run I'm not too worried about it. If I really want to dogfight, well, thats what IL-2 is for, right???
Also I have a problem when at the bombadiers station. When I move the crosshairs around normally it's not a problem, but when I go into "fine tune mode" (can't remember what it's called..) I can only seem to adjust the "uppy-downy" and not the "lefty-righty".I have followed what they say in the manual, but it doesn't seem to work. If I need to adjust left and right, I have to take it out of "fine tune mode", adjust accordingly, and put back in "fine tune mode". Annoying to say the least. Makes getting bombs on target harder than it needs to be! Let me know if you get this problem as well...
Oh, by the way, which verion of B-17 are you running? I have version 2.0, but if you are running an earlier version, this may or may not cause problems. The patches are still out there, but if all else fails, I have them and could email them 2 u. (Can't remember how big they are...could take a while.... )
Anyhow, hope this helps a little. Happy flying, get those bombs on target, and get home safe!!!!
"Peace through Superior Firepower"
"Peace Through Superior Firepower"