If you aren't already, try starting the game by typing "fall.exe z.cfg"
this is the first thing anyone has suggested that changed anything. unfortunately, what it changed was that daggerfall doesn't detect the mouse after it starts up. i can get a game going using keyboard commands, but the cheats still won't work.
i'm glad so many people are willing to offer fixes, though. if anyone else thinks of something, please let me know.