Vista SP2 is the best compatibility setting.
XP SP3 is OK too, but has the "desktop composition" slowness.

I usually have Reduced Color Mode set to 16 bit (65536), and Disable Display Scaling checked.

I've not had any issues running as Administrator, but I don't do much with Outlook.
What API's don't work ? Do you mean they don't work only when you run as Administrator ?
What service pack have you installed ?