After searching the GOG forums I finally got Icewind Dale 1 running on my Windows 8.1 64bit machine. It took a combination of two things to get it to run so I'm listing the steps I took and hopefully they will help someone else.

After Icewind Dale installs go to your Icewind Dale Shortcut (should be on your desktop).

Step 1 - Right Click on the Shortcut and select properties.
Step 2 - When the Properties Dialog comes up click on the Compatibility Tab and set these properties.

Check - Run this program in compatibility mode for Windows XP SP3
Check - Disable display scaling on hight DPI settings
Check - Run this program as administrator

Step 3 - Remove the ddraw.dll file from the Icewind Dale 1 install folder.

You may want to run the Config.exe in the Icewind Dale game folder and check "Use OpenGL 3D Acceleration" under the graphics tab. This allowed the game to run great on my Windows 8.1 & Windows 7 machines and it looks way better now, primary the fog of war is much, much nicer. I didn't need to change any compatibility settings. You can also unlock higher resolutions in this tab. I use 1024x768 because it gives me a better view but doesn't zoom me out so much that my character's are really small (like using the High-Resolution mod at my native 1920x1080 does. It feels more natural to me.).

Thanks for the 3D acceleration tip I forgot all about it. It definitely looks better. I do have one problem or maybe it's just the way 3D acceleration works, but when I enable it and set the resolution to 1024x768 it doesn't scale to fit the whole screen like 800x600 with 3D acceleration turned off. I mean 800x600 filled from top to bottom with black bars on the side but 1024x768 with 3D acceleration is like a 1024x768 window with black bars top, bottom, and sides. I made sure that full screen is selected in the options using the config.exe.

There is probably a setting in your graphics driver control panel to fix this. If you are running nVidia graphics, right click on your desktop -> NVIDIA Control Panel -> Adjust Desktop Size and Position -> under "Select a Scaling Mode" select "Aspect Ratio" and check the box "Override the scaling mode set by games and programs". This will scale up the game to fill as much of the screen as possible while maintaining the 4:3 aspect ratio so the game displays as intended. You can also select "Full Screen", but it will stretch the game horizontally so it will look somewhat distorted if you have a widescreen monitor.

I haven't had an AMD card in a few years but I used to enable scaling like this article shows (from 2012): http://support.amd.com/en-us/kb-articles/Pages/UnableToSetGPUScaling.aspx

I don't have any experience using Intel graphics. If you are using that, I would just search the control panel for similar options.

Thanks. That solved my problem on my Windows 7 desketop however my Windows 8.1 laptop doesn't have that particular option. I'm going to Google it and see if there is an equivalent setting for my laptop.

Did you manage to solve this?