Hardware acceleration is active.Have DX11.
What gives?

Post your DXDiag.

The simple solution is likely to install the full DX Runtime:

http://www.microsoft.com/downloads/en/details.aspx?FamilyID=3b170b25-abab-4bc3-ae91-50ceb6d8fa8d

Supported Operating Systems:Windows 7;Windows Server 2003;Windows Server 2008;Windows Vista;Windows XP Service Pack 3

directx_Jun2010_redist.exe - 95.6MB

It often makes no difference at all what Windows version is used, since neither Dx10 nor Dx11 is adequately backward compatible. The game's own install wants to add Dx9 when it doesn't find that, and if prevented from doing so, this sort of thing can happen when the game calls for Dx9 (although if the author is accurate, it's a Dx8 library file this time). Therefore, "just any" Direct3D might not be the fix in such cases, when only a Dx9 update may be able to cover the graphical requirement.

Tx for the quick reply.
Have followed your advise.
Now get following

Stream Error

Application load error
5:0000065434

Any ideas?
-0

Not a "stReam" error at all. It's "Steam":

http://www.google.com/search?q=+Error++Application+load+error+5%3A0000065434