I solved the problem by re-installing windows.

After two glitchy installs in a row...this time I decided to burn windows 7 to DVD rather then USB (via MS's usb/dvd maker tool).

It worked perfectly, so I suspect there is an issue somewhere between Windows 7, Microsoft USB/DVD tool and using a USB stick to make a new installation of Windows.

I've already done DirectX multiple times, I'll try the Audio Drivers now though.

I've tried reinstalling my audio driver and get the same error. I even tried switching back and forth between on-board and pci soundcards disabling one and then the other and get the same exact error when when trying to open the game from it's steam directory.