I have moved your post into a thread of its own, since the thread it was posted in was a very old one.
32-bit programs should, as a general rule, execute just fine on a 64-bit platform, unless the application itself is coded (or set through a configuration file) to only allow execution on a 32-bit platform. I believe this is what is happening in your case: the setup program is checking for 64-bit OS and disallowing the setup process to continue upon finding it.
Compatibility settings aren't system-wide, and are quite safe to use without affecting your computer overall. You use them by right-clicking on an .EXE file and going Properties and Compability settings (or similar, I'm on Windows 8 now & I don't remember the old menus by heart). You could try setting the setup to launch in, say, Windows XP compatibility mode, to try and fool the application that it is being launched in XP.
I've not personally had much success with old software and the compatibility settings. If you are not afraid to get your hands dirty,
you can look at the second post in this thread. It instructs how to edit the setup information so as to prevent it from checking whether the operating system is 64-bit.