I installed Vista Ultimate recently on a development laptop and was initially upset to find the handy Virtual CD-ROM which had worked so nicely under Windows XP no longer worked. Having faced such similar behavior under XP with older games I liked to play, I immediately decided to see if using it in Compatibility Mode would work…and it does!
Simply right click the VCdControlTool.exe and select Properties as shown below to change compatibility:

This worked on my machine using Windows Vista Ultimate.Oddly enough, when I went to recreate the original error (to grab a screenshot for this post) the tool still worked even with Compatibility mode turned off…a bug? I dunno, I’m just glad it works.
Being an old school gamer has some benefits ;)