After trolling forums for days working on this issue, and finding lots of ALMOST right answers, I guess it's time to break down and ask myself 
I have a Vmware Server 2 install on a 32 bit Win7 machine, running an XP Pro SP3 VM. I can't for the life of me figure out why I am getting these hardware problems! Ill list the symptoms and then what I've already done to try and troubleshoot the issue:
Symptoms:
1. Can't install any drivers (can find new hardware, can choose a driver, but when the Hardware Update Wizard is actually installing the driver it hangs indefinitely with no errors, just the picture of paper flying from one folder to the next)
2. Cant open the Network Connections control panel or system properties, Including the Start-Run-ncpa.cpl method, but I can start device manager this way, and most of the other .cpl files work (one or two do not).
Tried and Failed fixes:
1. Fresh copy of the VM from a known working machine (XP Pro host OS, but it only had 1 network card (which works) and needs another)
2. Running sfc /scannow comes up with nothing
3. Replacing the ncpa.cpl from Install disk
4. Pretty much any VM I move from another host has these issues, but VMs created on this machine do not.
The only 2 options I can think of are Virtual Hardware incompatabilities (The VM was created in workstation 6, but works flawlessly on another pc with XP Pro host and the same Server 2 version), or a Win7 specific issue. Both guest and host are 32 bit, I have checked all entries in the .vmx file pertaining to hardware versions and ethernet properties against a working VM created on this host, when moving VMs i always say that I moved it instead of copy to preserve virtual machine hardware IDs.
I am really trying to avoid recreating this VM from scratch because it is running a finicky, antiquated DOS program that takes days to install and configure.
I am fresh out of ideas! Thanks in advance for help, the .vmx files of both the trouble-maker and the working VMs are attached.