Go to device manager and start the update driver wizard for the dongle. I'm assuming from here you've been using "Search automatically for updated driver software". DONT.
Instead select "Browse my computer for drivers software". From here you're probably choosing a folder and clicking next. DONT.
Choose "Let me pick from a list of device drivers on my computer". From here I think it will ask you what kind of device from the list, there should be an option for "Other" or something like that. The next window should have a button for "Have disk". Click that **** and NOW point it at your driver folder.
That should get you sorted. Try different copies of the driver if you have to. It should just work.
You may have to have the dongle hooked up to your cars odbII port too, I can't remember.
edit: I don't think XP mode is required to launch and run BMW Scanner. Pretty sure I've got it running on 32bit Windows 7 natively.
Last edited by jamex; 03-09-2013 at 05:57 PM.