16 bit Windows Subsystem error

I had the same problem recently, was trying to re-install several games I had removed from my system and would get the exact same message.
I called novalogic support and they said that it was a corrupt windows file and to try either repairing the file or start the computer in safe mode, install the game, and then restart in normal mode. I tried installing in safe mode and got the same message.
next I called Gateway support and they had me insert my windows xp installation disks and run a full system repair. however, at some point in the repair I hit the wrong button and started to rewrite xp on top of itself. consequently, my system was toasted. Had to turn computer off, re-boot from xp installation disk, delete EVERYTHING from computer and re-install xp. Now my games all install perfectly and run better! but what a pain!
Try running your system restore feature.
if that doesn't work, try installing in safe mode.
I uninstalled xp service pack 2 and found it made no difference.
Try repairing xp files with installation disk, it takes a while(30 minutes or so) but stay close to your computer because at some point you will be asked to make a choice on what to do next and there is a clock ticking ( it was around 10 seconds). Do not choose "install now" option! or you will lose everything like I did.
Make sure you write any real important stuff to cd before you try repairing with xp disks so you wont lose it.
try calling microsoft support( think it costs money though) they may be able to help you also.
hope you dont have to re-install xp as I did, but if you do, your games will work again and probably even run better!
good luck