Why does your new Windows 7 tell you that Diablo 2 has known incompatabities and refuse to play it

Some programs are known for being not compatible with Windows 7. As result Microsoft designed a list where all such programs are stored. Whatever is on that list will not start under Windows 7.
Unless you change of the .exe file. You will have to change the shortcut properties too because of that. When you change the name of file the program will start but you take all responsibility for that. In most case it will not case any harm, but there are some nasty cases.