I noticed the warning about not being compatible with Windows 7 on Steam before buying the GoTY edition (my old retail copy is packed away), but I quickly found a few solutions on the steam forums if I were to run into any crashes.

However, I did see quite a few people talking about mods not working with the steam version and Windows 7. Does anyone have any insight into this or is everything working as it should?

Only issue I know of if Steam is installed in the programs folder or if the game is installed in the programs folder. Best to install in C:\games