I have the same exact issue. Running Vista x64 SP2 here. I actually got the game to work last night by setting all .exe's to XP SP2 Compatibility mode. However, today it does not work again. After cancelling the first dialog, I enter username/password, and then it goes to desktop (with batch program still running in background) right as it should be playing the "pulsing hand" animation. I know the user/pass are accepted because when I purposely enter them wrong, I get the "info not recognized" response instead, with no crash.
Someone suggested in another thread to do a force-update each time you close the game, but this is not working for me.