Bingo! And Core2uu gets the prize! Works like a charm as I was using the wrong "media" folder. I needed to use the one in the game level folder.
So for the guy or gal who finds this post on a search here is how I fixed it for Vista x64 system running Visual Studio 2008:
1) Install the DirectX SDK like the GDK recommends
2) Install DarkGDK. When asked to continue even tho it does not detect your compiler go ahead and continue.
3) once installed start your compiler and click on tools->options
4) Under Projects and Solutions->VC++ Directories select "include files" from the drop down box.
5) click the new folder button, then click the three dots button. Direct it to your DarkGDK include directory (C:\Program Files (x86)\The Game Creators\Dark GDK\Include by default)
6) click the new folder button again, then click the three dots button. Direct it to your DirectX SDK include directory (C:\Program Files (x86)\Microsoft DirectX SDK (August 2007)\Include by default)
7) from the drop down box in the upper right select "library files"
8) click the new folder button, then click the three dots button. Direct it to your DarkGDK lib\vs9 directory (C:\Program Files (x86)\The Game Creators\Dark GDK\Lib\vs9 by default)
9) click the new folder button again, then click the three dots button. Direct it to your DirectX SDK lib\x86 directory (C:\Program Files (x86)\Microsoft DirectX SDK (August 2007)\Lib\x86 by default)
Make sure your proper media folders are in the same folder as your VC++ Project folder. And be sure to use the right media folder. Searching your DarkGDK folder for the media files you are looking for is a fast way to find which folder you need.
Good luck.
And thanks to everyone for their help!
Requirements for life: Food-Water-Video Games!