The game worked, however each time the game closes/quits it keeps on deleting/reseting the sdemons.ini (the options config file). This occurs on both vanilla (either patched or unpatched) and modded install. As for the modded install, I've followed these steps correctly.
http://www.moddb.com/games/fighter-squadron-s … n-install-order

From what I read, the problem is caused by installing the game in Program Files folder, but I didn't install it in Program Files. Nor using the latest unofficial patch and/or messing with compatiblity modes could fix it either.