Well, looks like Im screwed
http://www.uesp.net/wiki/Daggerfall:Running_under_Windows
Advance Warning
There is a serious memory issue when running Daggerfall under a modern Windows-OS such as Windows-XP. This issue causes the quest object to be invisible, hence it will be nearly impossible to find or kill a quest object, since it can not be seen. Once the quest is active, switching to DosBox or similar applications doesn't solve this problem, since the quest data is already stored in your savegame, you have to start the quest from the scratch. Always keep that in mind because, if you embark on the Main Quest or a quest line, you will have serious troubles. In addition to the problems with the quest object strafe, backwards moves, climbing, swimming and jumping are almost impossible to perform. Considering all these facts, it is highly advised to use DOSBox when running Daggerfall under a modern Windows-OS.