I don't know if it will help, but have you tried a NoCD executable? Since it appears you legally own the game, I think you would be allowed to do that.

Just tried a 1.1 NoCD .exe and nothing's changed. It still gives me the error, unfortunately. :c I really want to play this mod. Damn computers and games and work-in-progress stuff being all prone to not working properly and such... :/

Any other ideas I could try? I've tried compatibility mode, running as admin, turning off DEP for the .exe, the aforementioned registry cleaning. I personally can't think of anything else, but the internet frequently has more and better ideas than myself.

So I gave myself a clean install of GTA III to use since the main installation I have is modded. Cool, whatever. I patch it to 1.1 using the official patch tool, etc. I install LU, start the server browser, and lunch into a game. Or tried, since it ended up giving me an 'Unhandled exception' error while DL'ing the files. That's another problem for another time, though. By this point, I've noticed the LU apparently has native widescreen support. Intrigued, before looking for a fix to my previous problem, I decide to load the gta3.exe file to see if the widescreen support without a fix extends to that .exe. Well, it doesn't, and I'm greeted with a screen telling me to insert disk 2. Confused, but uncaring, as it isn't my main GTA3 installation, I leave it be. I decide to give LU another chance at loading a server, but this time, upon loading the game, I'm given the 'insert disk 2' thing. Considering that I still have the play disk in my drive, I have no clue what to do. I've uninstalled LU and GTA 3, I went into the registry and deleted every trace of this install of GTA 3 and LU as well to no avail. Now, no matter what, it gives me the 'insert disk 2' message and when cleaning shit up through regedit doesn't fix the problem, then I can't imagine what to do next.