Try using compatabilty mode in Windows7
1. Right-click the shortcut you use to launch AOE2. Go to "compatabilty" tab and select "Run this program in compatablity mode for": and select "Windows 98 / Me". It also worked in "Windows XP SP3" but the colours were not quite correct in-game. So I would suggest the Win98 selection.
part b) When creating a LAN game. I get the XP machine to create the game (LAN option), other XP machines connect via the LAN option too. BUT windows7 does not find the game under the LAN option, instead using the Direct TCP connection, and enter the IP address of the hosting machine.
The game is then shown using Find Games, I connect and goes smoothly then after.
2. A second solution is to install "VirtualBox", which is free and supports DirectDraw. Virtual PC does not support this. For a first time use, I needed to add my wireless network adapter in the the list of adapters. This did all work, but was a bit sluggish when trying to play.