See here and reply:
http://www.uesp.net/wiki/Daggerfall_talk:Running_Under_DOSBox
?Sam324

Use DOSBox, not the Windows installer. Install the game from DOSBox.

Mount using the "-freesize 500" parameter. Search other threads for more help.

Now it says I'm using the wrong CD.

Edit your "z.cfg" file and have "pathcd" point at "c:\dagger\arena2\"

Start the game with "fall z.cfg"

Now it's back to the old "Missing CD" error.
http://img296.imageshack.us/my.php?image=dosboxce4.png

type dfall_minimumpath c:\dagger\arena2\pathcd c:\dagger\arena2\fadecolor 0mapfile drendergame 1user 1startMap 179region 17helmet 0maxSpeed 200controls betaplyr.datmaps mapsave.sav

Type just

"fall.exe z.cfg", no dagger.

Did you just do the minimum install of the game? You have to do the "Huge" install for this to work.