No. Do NOT try to run BZ2 1.3 in compatability mode. You'll get weird MS shims in that can break things. BZ2 1.0-1.2 in compatability mode might work, but if you run into problems, I'll just recommend you get a patch made this century.
The underlying issue is that a CPU running in 64-bit mode just cannot run a 16-bit application without dropping into "legacy" mode -- i.e. throwing out all the 64-bit enhancements. BZ2 (the game, every version) is 32-bit mode, which runs fine on 32 & 64 bit Windows versions. However, due to some inane braindamage at Activision (who put the CD together), the installer on the CD is a 16-bit app. That 16-bit app just can't run on a 64-bit OS. That's why you should go into the setup folder, and run the setup exe, directly.