I recall the Admin saying they revamped Microstudio to use DirectX and a full screen display when playing CD+G tracks. Microstudio 2.1.0.3 (which is way my help/about says) uses this. Among other things, I understand they tested this on a Win95 machine with DirectX 1 (!) since, after all, the graphics are on such a basic level anyway.
ADMIN EDIT: I was wrong!
We tested under Direct Draw 1.0, but we still require Direct-X 7.0a for playing.
If "SetDisplayMode" (a DX function) is failing on your system you probably don't have a video driver set that supports DirectX or at least one display mode Microstudio's calling. The cheapest 1 MB video cards I recall that supported DX1 fully were based on ATI's Mach64 chip. The old Trident / Cirrus Logic cards might not work.
The previous (trial) version did not use a full screen display and glitched out sometimes (the graphics would freeze while the music still played). They seem to have fixed that by going to a full screen display.
So either get a driver set for your card that fully supports DirectX (or use the driver set that comes with DirectX if it still comes with drivers) or replace the video card with something more modern.