Runs fine on my laptop with that line in and tools lot loaded. did you try lowering the settings in game? esp now that out fixed it to not load default high settings etc?
lowest settings possible, but without drivers its like slideshow, 5 fps max...
its something wrong with tools and vmx file (when its corrupted, tools wont start)
i really dont know what to do, will probably start over
and 1 other thought is that registry lines that you change to GTX is somehow affects the driver VM uses
EDIT: so i did all again and the problem remains
when you edit your vmx file - you tell your VM that its not a VM and the tools can be run only on a VM, so i really cant understand how its done
EDIT 2: i deleted directexec_disable line from vmx file and set hardware compatibility with workstation 9 in edit->preferences
some of that worked, idk exactly what was it
and here is video (not mine) with similar guide like in OP post, it may be helpful for someone. sorry for my bad english and good luck
Como abrir 2 crossfire AL - YouTube
EDIT 3: blinks in 1.7 fixed with fullscreen, windowed mode blinks, fullscreen works perfect
EDIT 4: no, fullscreen doesnt fix it, graphic settings affects blinks (test what settings removes it if you want)
on max settings they go away, but obv you cant play on max settings inside VM