I have exactly the same problem. The RTW DVD disk does insall Ok on A tower machine running WinXP but my lap top which has a similar spec gives the error message mentioned in the first post. Both machines have Nero6 software on them so it is not a conflict with that and it is not a duff RTW disk.
I have two copies of the WinXP pro OS on my laptop. One has no other programs installed ( it is just the bare WinXP pro OS) it didnt recognise the Rome Total War gold edition disk as a valid Win 32 application. So the problem is something to do with the OS rather than a confilct with other programs. The RTW disk did run on the tower machine which also has WINXP pro on it so it must be some specific update of the OS which is causing this. But HOW TO Get AROUND IT?!!!!
I tried installing RTW but using a different DVD drive on a usb port to the laptop. It worked no problem. This is odd in that the hardware device manager indicates both the internal dvd drive that gave the problem (a NEC DVDRW ND6500A) and the extenal one that worked (Sony DVDRW Dru-700A) use the same driver( MS 5.1.2535.0 01/07/2001). The internal dvd seems to work with other games: MTW, IMPGlory so is not dammaged . So what exactly is the problem? I have encountered a similar problem before when trying to load Windows from a disk on a new high spec tower which had two DVD players. One always gave an error message that the Windows Cd was not a valid application while the other always worked oK. I have no idea what causes this. Does anyone know?