You're going through a heavily over-complicated process, been there - done that.
What you think You need is a dual-boot system with multiple OS'es installed.
What you REALLY need is to download "MSVirtual PC2007" free from MS and install it.
The program basically automates a pretend system within Your current system that emulates the actual Windows verified hardware combinations (HCL Certified hardware configs complete with operating chip codes, etc) required to run several versions of Windows at a decently smooth speed and performance.
The program basically sections off a file to create a virtual harddrive and You then use that virtual machine and it's hard drive space like a dual-booted brand new hard drive for each OS. You can also minimize the Virtual PC and be instantly back to all the hardware and performance of the actual new system with Win7 in Your case.
The program is tiny and not impressively pretty when You start it, very unlike MS ... But it will give you the ability to run several computer platforms and OS'es while not working around harddrive bootblock edits, memory overruns, or unsupported USB ports, etc ...
Best guess I can give is that this was developed for old days support desks that had to support multiple OS'es and be instantly in them for callers on hold to give accurate keypress series of reference.
The new name for the technology is "Cloud computing" for marketing purposes meaning a cloud of simulated older hardware running over a server-class system.
Sorry - original question was a 16-bit game. There are only 2 versions of useful Windows before Yours. XP Pro and WinME. Run a virtual machine for ME and it will run Your Windows 3.1 game fine, because Your game is looking for underlying DOS6.22 code outside of Windows 3.1 or 95, and WinME used DOS7 which was still standalone enough fro Windows to run them.
Good Luck! - and ENJOY THE NEW TOY!!!