Tarjak, my apologies, because no-one responded to my post I did not think to write back with my progress here - my bad. I did find a solution of sorts. Try this -
Go into the Libraries - Documents folder of SH3 in W7 and look in Data-cfg-main (not in the data folder inside the game folder itself- the one in Documents, although you can change the one in the Game folder proper as well). Scroll down 'main' ( you may need to open it in Notepad) until you get to VIDEO, and change the resolution there to 1024x786.
That is all it took to get the game finally working for me - but only in vanilla.
I had patched it, no-cd'd it and put GWX3 on, but it only runs in pure vanilla mode. Hopefully as we get used to the way W7 does things we will be able to find a solution to that, but at least its working now, and runs perfectly. Hope this helps.