GTA III Steam Version crash on nw game

Hi all, I've recently downloaded and installed GTA III off steam but having serious difficulties getting the game to work. Basically when I go to start a new game it shows the first few seconds of the opening cutscene then the screen freezes (audio still playing) before eventually receiving an error message "gta3.exe has experienced a problem and needs to close" even if I try to skip the cutscene, the game still crashes though displays a "unhanded exception" error. I've tried numerous things such as

running in windows 98 compadability mode
deleting gta3.set
re installing game.
unticking gta3.exe in data execution prevention menu in the control panal...all which have failed!

My Computer specs are as follows:
System: Microsoft Windows XP SP3
1.99GB or RAM
Pentium® 4 CPU 2.8Ghz
Intel® Express Chipset Family Video/Graphics card with 128mb memory.

Since I have just installed the game, there are no mods installed either.

Your Help would be greatly apprieciated, I want to play this game again so badly!!!