I wasn't originally writing a "how to" in this thread, but in case anyone is looking for a step by step, here it is:
1. Run the installer for Wavepad 3.05 (or any version 3.x)
2. If the MS compatibility wizard comes up, let it do its thing, just proceed to install the program regardless of any messages.
3. Now right click on the Wavepad desktop icon (or the Wavepad program item in the Windows Start Menu) and select "Properties"
4. When the Properties dialog comes up, select the "Compatiblity Tab"
5. Check the box that says, "Run this program in compatibility mode for:"
6. Select a mode from the dropdown box that works best for you. You may have to experiement a bit, but I found that Vista, service pack 2 works best for me.
7. Click "Apply" and "OK" and all that and you're all done and good to run.
Note: You don't need XP Mode to do the above.