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Well you should be fine then.

It would seem that your disk is either defective or the installation file is defective. Have you tried any other demos on the disk?

Another thing you could try is use My Computer or Windows Explorer to browse directly to the folder containing the demo. Try clicking on setup.exe in that folder (it should state file version 1.1.3096.30 & be 568 kb if you leave your mouse hovering over the file).

If that doesn't work, there's one other thing you could try, assuming the demo is set up on PC Gamer the same way it's on PC Powerplay and you're familar with folders & files. I noticed that if you open the files folder in the demo folder, it contains most of the game's files uncompressed! You could drag the contents of this folder (files) to a folder on your C drive. You may need additional files from the base demo folder as well, ie the ds2.ico if you want to make a shortcut. You may also need to remove the read only attributes on the files.

This is a longshot but may work (and you've got nothing to lose). If the game actually starts but complains about something, you may need to manually create a folder for it to store game info in. This folder should be called Dungeon Siege 2 and needs to be located in another folder called My Games in the My Documents folder. The Dungeon Siege 2 folder needs to contain 4 folders within it, Keys, Logs, Save & Screenshots.

Apart from that you may find some info in the official forums (is there any?), as it's quite possible other people have had the same problem. You could try to obtain a replacement disk as well from where you bought it.

Let us know how you go, as others could have the same problem.