will i would say;
1.) update your windows Xp home to: Build 2600.xpsp_sp_grd.050301-5119 (Service Pack 2)
2.) DirectX 9.0c is it updated?
"click-here"
other wise your system seem OK.
only thing i can think of DF:LW some how gone bad.
unstill it, then delete the game folder totally, restart your system, re-instill it, update it.
you can save "name.sav" then after you down you can put into the game.