I got it to work and here is how I did it.
I looked at this thread: http://www.lucasforums.com/showthread.php?t=178099
I read though what some others have done so I tried the same.
I copied the mss32.dll from Kotor and put it in Kotor2, and the game started right up.
Operating System: Windows Vista™ Home Basic (6.0, Build 6001) Service Pack 1
System Model: GA-MA74GM-S2
Processor: AMD Athlon(tm) 64 X2 Dual Core Processor 6000+
Memory: 2046MB RAM
DirectX Version: DirectX 10
Card name: NVIDIA GeForce 9400 GT
Driver Version: 7.15.0011.7779