Double post I know BUT
I just dug out my original of Dungeon Keeper II, loaded up into Windows 7, added the official 1.7 Patch and then added the GOG unofficial 1.8 patch and it is working 100%.
It is such a good game I cant even start to tell you. I urge everyone to go onto GOG, pay $5 and play it today. I am going to replay all the single player levels again.
One of those rare times that something you remember as being good is still as good. An excellent game.