Posting here for anyone stumbling upon this from a Google search like I did. I encountered this issue out of the blue yesterday (with my Steam version) and compatibility settings and things didn't help. I don't quite understand what I did, but here's the steps I took to resolve in case it helps anyone
1. Launch Civ3, start new game. Note it crashes on 'configuring barbarians' like above
2. In C:\Program Files (x86)\Steam\steamapps\common\Sid Meier's Civilization III Complete\Conquests\Conquests\Middle Ages\Text\labels.txt, Delete the 'unknown' value (line 86) and leave it as a blank line.
3. Launch Civ3, start new game. Note that the labels are mismatched but a new game starts. Quit
4. In Steam, right click game>properties>local files>Verify Integrity of Game Files. It found '2 files to reacquire'
5. Game now runs fine?