So, like Silvek, Grim Fandango got a dusting off to be played again.
I'm running Windows 7 64-bit and have it working just fine. However, without some tweaking, the game displayed the following characteristics;
It disliked moving from fullscreen game to desktop and back again,
Whenever you pressed F1 to get to the menu, then resumed the game, the sound would disappear,
When you selected to use hardware acceleration (aka, anything other then software rendering), the game would hang after a short while.
To correct these problems I used the grimsetup1.0.exe installer from http://quick.mixnmojo.com/software/grim-fandango-setup
as a replacement installer. It asked for both cds and installed flawlessly.
You then want to go to the directory where you installed it, (In my case it was C:\Program Files (x86)\Lucasarts\Grim ), and right click on 3 *.exe files, 1 at a time and select "Properties". The 3 files are;
Grim Fandango Launcher.exe
(GRIM.EXE is the important one, but I thought I'd do the other two just in case)
Once in the Properties, click on the "Compatibility" tab,
check the "Run this program in compatibility mode for:" box,
and select from the dropdown menu: "windows 98 / Windows Me" (since this is what the game was designed for).
(If you still have issues, you may want to try checking some of the boxes under the settings section. I currently don't have any more issues, but these would be my next port of call.)
Next double click the icon created on your desktop and run the launcher, this should detect if your version has the patch installed or not and ask if you want to download and install it... click yes.
When that's done, launch the game, and once you're in Manny's office, hit F1, go to Options and turn on your Hardware acceleration.
At this point you should note that you have crisper graphics, when you resume the game, you should still have sound, and the game should not act erratically if you need to Alt+Tab to the desktop and back.
Hope this clears up some concerns or unscratches some heads.