Kotor will not work properly on windows 7, regardless of its purchase origin. (be it steam, D2D, BOPC or the original.) Since there are about a dozen threads about this same crash on the Steam forums, purchasing the steam version won't solve a thing. However this particular crash is not directly Windows Related.
Am I correct to assume you're using an ATI videocard? (probably am, since it's a typical ATI crash.)
Alright there's a few things you can try. (Work in this order)
UPDATE YOUR VIDEOCARD AND CATALYST DRIVERS. Start with that.
Run the game as administrator (rightclick --> compatability -- run as administrator.) (If you're under the impression that you are on the administrator account, allow me to shatter those believes right away. You're not. It's blocked through DOS, courtesy of Microsoft.)
Run the game in windows xp sp3 compatability mode (rightclick --> properties --> compatability) Combine with Run as Admin if it doesn't work.
Go through that bit in windowed mode (you can change it back after you've passed by the video and saved your game): Go to the install folder (C:\Program Files\LucasArts\SWKotOR), locate swkotor.ini (open with notepad. If you can't find it, turn off that ridiculous "Hide comon file extensions" under extra --> folder options --> view) and change FullScreen=1 to FullScreen=0. Save the file. (if it cries "i'm a big baby and wont save on C:\ because i'm w7 and dont like smart users", save it to the desktop and paste it back into the folder manually.)
Disable movies completely. Back to the swkotor.ini (see above). Change Disable Movies=0 to Disable Movies=1. You can view the movies manually (or just turn them back on after the crash) using a .bik viewer. (see below)
Download a .bik viewer (http://www.radgametools.com/bnkd own.htm) then go to KOTOR's install directory and click on the folder "movies" look for the movie that plays on a different resolution (and which causes the game to crash) and change it's name. The movie will simply not play and you'll be able to proceed.
So I just bought "Star Wars: The Best of Pc" and started playing Kotor 1. I got all the way to Taris and i have just beated the bounty hunter with the goggles and am about to board the ebon hawk. I then destory the fighters while using the gun turrents no problem. Then as the cutscene to Danto. comes in, I get an error message. I have tried to skip it, but the load screne will not load all the way and then pops the error message again. I hope you guys can help me because I really want to finish this amazing game. Also, does the Steam Kotor have any error or crashes and will it work for windows 7 64bit?