Credit for these instructions should go to RenegadeSniper7, Astrotoy, Q, and alinadem. This is what I personally use to install the games when I'm doing a fresh install.
This thread is mostly a cut and paste job put together from sources from both here and at LucasForums. This is should NOT be used if you're dealing with the Steam version of KotOR or KoTOR2. In order to simplify things, I've decided to create this handy - all-in-one thread of how to install KotOR if you're using Vista or Windows 7. Hey folks, I've read quite a few threads of folks having trouble with their use of Original CD Versions of KotOR 1 & 2.