Expanding on what Kranmar said:
http://www.uesp.net/wiki/Daggerfall:Files You can find the file here. Its the very first (topmost) file. I can say from personal experience that this is by far the most reliable way to get the game running the way it should. We owe a deep gratitude to the wonderful folks at UESP who put it together.
Details:
"DaggerfallSetup v2.3 is a
ready-to-play Daggerfall install compatible with modern Windows Systems compiled by http://www.uesp.net/wiki/User:Ancestral_Ghost. The game already includes patch 2.13 and the official CompUSA Special Edition quest pack and DOSBox. Unofficial fixes, quests, translations and utilities are also included as optional installation components."
This requires ZERO configuration, and you don't need to download dosbox seperately. Just install the game as normal, and run it from Daggerfall.exe. It will immediately work.
Oh, and if you minimize daggerfall (hitting the windows key, alt+tab, etc) you can restore it to full screen by pressing Alt+Enter.