John - the game freeze is the main problem that I hoped you wouldn't encounter.
The rocket problem is an old problem we've had ever since CPU's got 'too' fast and the inverted color problem is probably a graphics card/driver issue.
Try this fix to see if the game freeze stops. You want to go down to the 'Phoenix's LB2 Final Solutions' and get that one.http://digitality.comyr.com/flyboy/lb2/setup/setup.html
This is as far as we've ever got for Windows Vista/7 fixes. If that doesn't work, you're f*ck*d to be perfectly blunt, same as me.