It is possible that your PC's video card will not support VC native resolution (which is extremely low 640 x 480).... when the game starts it will check for the .set file, if none found, it will try to start it in native resolution and if your PC can't support it, it will kick you out.
Try one or the other of these .set files I created on my PC-- put it in your "user files" folder which will be under your profile-- not under the game files... the below is located in the pinned bug list thread... problem #31
Vice City is unable to start up due to your video card not supporting lower resolutions-- specifically it does not support 640x480 resolution- this is VC's "native" resolution (i.e. the resolution the game starts in if you have never played it before)-- if your card does not support this resolution (and many newer PCs cards don't) the game will hang up upon start up.
Try one or both of the following settings files that I (Spuds725) have rehosted... one is at 800x600 and the other is at 1280x720
800 x 600resolution
1280 x 720 resolution <- you will need to rename this gta_vc.set for the game to recognize it.
Put the above file in the appropriate file created by the game upon install... on XP is should be under your profile inside of my documents.... for example on my machine it is located
C:\Documents and Settings\Bill\My Documents\GTA Vice City User Files\
After you have adjusted your resolution "in game" your settings are stored in the gta_vc.set file-- once you get the game functioning it would probably be a good idea to back up your gta_vc.set file in another location.
Please not that you can only adjust your video settings at game start (before loading or starting a new game)-- you cannot pause and adjust them.
NOTE: the above gta_vc.set files were made on my PC-- they have worked for a few other people with this problem, but there is no promises that they will work on your machine.
After you get the game to start, you can adjust the resolution to whatever you want-- note that you can only adjust the resolution when you first start up VC--- you can't pause a loaded game and adjust it.
If this does not fix the problem... let us know-- I don't recall if that is the error you get when this is the problem...
Have you tried running as administrator.
Another thing to try is in the compatibility tab-- select disable visual themes.
I'm not much of a VC PC person (I play on PS2 and PS3)-- hope you get it to work. This post has been edited by Spuds725 on Thursday, Aug 30 2012, 19:58