Trogdor, while people say Vista is crap because of this or because of that, Vista with its 2nd Service Pack is perfectly acceptable.
However, I merely added the Freelancer.exe from discovery into my steam and it works perfectly fine, overlay and all. I am, however, on an Administrator account and using Windows 8.
Maybe an OS upgrade (preferably a reformat) would fix it. I don't know how Steam fares on Vista compared to other Windows versions.
EDIT: However, I have not played FL in awhile and this was before the beta for 4.87 came out
EDIT AGAIN: Trogdor I am so sorry I didn't read the thread at all and thought it was for Freelancer. Your problem is not Steam, however, but most likely the MMO. For example, WoW could run and show the steam overlay until Mists of Pandaria came out.