From
here:
AMD’s DirectX 9 ATI Radeon graphics accelerators are not officially supported under Windows 7. If the user chooses to, they can install the ATI Catalyst Windows Vista graphics driver under Windows 7. Please be aware that none of the new Windows 7 graphics driver (WDDM 1.1) features are supported (as the Windows Vista level graphics driver is limited to WDDM 1.0 level support). Using the ATI Catalyst Windows Vista driver under Windows 7 is not officially supported by AMD, and as such AMD will not provide any form of customer support for users running in this configuration
Your graphic card and CPU are surely underpowered for LW under Win7. You'll gain much better results using WinXP SP3 with real DX9 ATi driver, not WDDM one.