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Here's what I've found.
There's a solution from 2011[web.archive.org] that talks about removing an updated version of GfWL and reinstalling the one that's shipped with the game. Since I've tried installing the GfWL installer that comes with the game before downloading version 3.5, I can confirm this does not work. Unless there's something happening in the background after installing 3.5 and then downgrading, but the thread talks about removing all traces of it, so I doubt it.
Starting SecuLauncher directly just bypasses the setup window, and still shows the error.
Rebooting my system didn't make any difference for me. Executing SecuLauncher as administrator, or requiring FUEL to run as administrator in the file properties didn't work - same error message.
I've checked the Event Viewer and can see warning entries regarding XLive:
I'm not sure how to fix them and at this point am losing interest for today. Why does this have to be such a hassle? These all seem like DRM-related issues..
For the record, this thread[www.nfohump.com] talks about a SecuROM crack by razor1911, which I wasn't able to test. The users there say you can even play online and it won't be recognized, because it uses the original FUEL.exe.
FUEL is not a scam. It is a racing game that worked well, but its copy protection is no longer compatible with current systems, and that is why the game is no longer sold officially.
If you get an older game (and FUEL is over 9 years old now), that's what you should expect. There are many older games that won't run properly on modern systems.
For the customer it means being aware of this, and keeping that in mind when judging the price that you pay for a Codemasters game.