Sorry... apparently I'm fail-proof. I'll give you a quick rundown of how the successful install went, though.
(Note: The box I'm using is running Win 7 OS in Japanese mode [for some reason there are a decent number of Japanese games for which the applocale method simply *will not work*. You might have to switch over to Japanese mode if you tried in applocale and it didn't work.])
First thing I did was to change the name of the unzipped directory because A) I want to be able to understand at some later date what the hell I actually *have* and B) Sometimes programs (either the install .exe or the virtual mounting program) have problems with extraneous symbols in filenames (e.g. % or &). Now my directory for the .iso is Games -> Apartment -> Interheart Apartment iso + mds.
Next I mount up the .iso using UltraISO. I like UltraISO because I don't have to crack anything for it to do everything I want. My trial version (who's trial period, incidentally, I think was up about two years ago. Still allows me to mount whatever I want, and if for some reason the image is some god awful format, I can usual convert it to a standard .iso.
I then ran IHSETUP.exe in administrator mode, because nothing pisses me off more than getting halfway through an install and finding out that some file needs to be overwritten, but oh no, I can't because I didn't remember to tell the fucking program ahead of time that I might want to change things on my own goddamn computer. For Christ's sake, I'm the only account on the computer and have verified hundreds of times that I'm the administrator... Does Win 7 think that if someone else breaks in and steals my box, they wouldn't have the fucking audacity to *right click* to override something because they realize they're not the "administrator"... /rant
Sorry about that. Anyway... once I ran as "administrator" I got the incomprehensible Japanese install menu. From my experience with incomprehensible Japanese install menus, I chose the option directly underneath the grayed out "I assume this means play the game" option, almost always the "install" option. Yay, my assumption was correct. Next screen is "where would you like this installed?" Default option? Yes, please! I chose what I have to assume says "next" in Japanese (sorry, I've forgotten where the button was located), and we're off. Everything installs and I'm returned to the original install screen, but now the first "I assume this means play the game" option is black. I test it out, and the game works.
A rundown of some specs: The box I'm running on isn't all that tricked out. 2 Gigs of ram, a bit over 20 gigs free on a 160 Gig drive, Athlon 64 X2 Dual Core processor 2.6 Ghz, which should all be well above what's needed for this game. Just because when I checked your error message it said "hey, the file system could be to blame" I'll mention my drive's NTFS.
Hope that helps... if not, well fuck, I just wasted my time typing out one of the most boring short stories ever written, except for the hopefully easily relatable bit about Win 7 being a nob about me needing to approve every goddamn thing.