I've tried many advices and fixes to run LB2 on newer OS's, but nothing worked for me.

Finally, I managed to run it without any problems on virtual PC, using Oracle VirtualBox:
https://www.virtualbox.org/

It took me about 2 hours to set up VB (Win98 install, drivers, etc) and almost no time to install and run LB2.

Be sure to read all tutorials in full, they explain everything you need to set up VPC running Win98:
https://forums.virtualbox.org/viewforum.php?f=2&sid=89dbe000e7921c3fe43317b6fd5bc795

AV8R joystick is working OK, will try few more if time permits.