I would investigate a little more, maybe even try a different compiler rather than format and re-install XP, that seems like an excessive move. The docs I read on the Mars site say the compiler only runs under Win32 which means it should work fine with either Win 7 32 or 64 bit.
I DLd and unzipped the free 8.56 version of the Mars compiler. The reason you don't see it anywhere is because it doesn't install, you simply run the compiler from the dmc\bin folder. The free version doesn't include an IDE, only a command line compiler/linker. Read the Readme file that you find in the package. The version that includes the IDE costs $44.