Arthur,
I run xp and have never had a problem.
Setup like in above picture.
In fact in the picture you will see a 'cabtest' - I picked up the nearest cd which just happens to have a file in the root with a 'cab' extension and added that and popped in the cd and it worked no problem.
The event you are triggering - are you sure it works on its own. Open the event manager and highlight the event and click the test button. I say this because i spent hours trying to get this to work and found out i had spelt the name of the overlay wrong in the event manager so nothing happens.
Other than this i really do not know as this has always worked for me.