I just got Daggerfall and it seems to be running fine, but the controls feel so archaic. Does anyone have a good custom control scheme that helps to remedy this, or are the controls not that bad once you get into them?

Just mess around with them for a bit and see what feels okay for you. I changed them into something similar to Morrowind and Oblivions controls simply because it felt more familiar that way.

Here's a screenshot of my control scheme, but this, is just for inspiration - you probably won't find it suits you. Try to think of a similar game with controls that you are comfortable with, and then use those.

http://img519.imageshack.us/my.php?image=controlskd7.png

The ones that I blanked out are the controls I don't use. Also, note that I tend to play in full-screen and with mouselook.

I kept the mouse-swinging weapon setup and move with keys(WASD). It feels somewhat clunky, but I'm fine with it.