Hi everybody! Thank you for the hints and tips in this thread! Helped me a lot to find a personal way to install GF. Unfortunately the thread got a little confusing and I thought I'd contribute something (to give something back to all GF lovers). Here is a surefire and totally easy way to install and run Grim Fandango on XP SP2. It worked for me and was a bit easier than the convoluted process described above:
1) Download the official 1.01 update
and the launcher utility
and save them somewhere. Have the original installation discs ready. Make sure you have at least 1.2GB of free space on the hard drive where you want to install the game.
2) Restart Windows and enter "safe mode" by pressing F8 during booting (after the BIOS screen disappears).
3) Insert disc 1 and install the game normally to any folder of your liking. Remove all discs from your CD-ROM, then apply the 1.01 update. Then restart the computer, but this time let it start the regular Windows interface.
4) Find the launcher utility you downloaded earlier. Extract the contents of the .zip file to the folder where you installed the game in step 3.
5) Start the launcher and select "? Options" (it's on the bottom of the window). A new window opens. Select "Run Grim from hard drive". A box will appear and ask you to insert disc 1. Follow the instructions and let it copy disc 1 and 2 to the hard drive.
6) When all files have been copied, you can close the options window. Choose one of the starting options from the top of the launcher menu. Have fun!
When starting the game in window mode, it may complain about not finding a disc in your CD-ROM drive. Just click "Cancel" a few times and you will be able to play normally.