DX7 cards don't support pixel shaders, so if it'll run with that command ^^ it might well work.
according to wiki, (click: see also), SM1.0 starts with Direct X 8, the Ati Radeon 8500 and the Geforce 3 series. Anything older than that (or the horribly misnamed GeForce 4 MX) won't support SM1.0
If it's not working, then either the card doesn't support SM1.0 (the last card I had that was a DX6.0 level S3 integrated).
Might be that the card drivers arent installed correctly, check that the card is being identified in windows and works ok elsewhere. Does sound like a Geforce 4 MX if it's 128MB though. Shame, cos I remember the back of many a games box had a 'not supported' section for those cards.
EDIT: There was a Geforce PCX 5300, which would support DX9b, but more commonly 8(The FX series is what Valve were slagging off when making HL2, they made it default to DX8 for better performance). If that's right, a weak card, so DX 7 it if you can.Edited by AntiTalent - 6/22/08 at 1:22pm