I followed the install instructions all the way up until the last point.
Everything went smooth until the last instruction which is:

20) Once the patch is done, the game may be started. At the C:\DAGGER> prompt, type: DAGGER. Press Enter. Daggerfall should now load.

thats when i get the error message:

ERROR: Looks like you inserted the wrong CD. Please insert your daggerfall CD in your cdrom and try again.

I have installed everything in its default location where the instructions have told me to.
Also, when i type: mount d c:\dosgames\dfcd -t cdrom -label Daggerfall
I get this message under it:

MSCDEX: Mounted subdirectory: limited support (<---not sure if thats normal?)

Thanx to anyone who can help.

This is a well-known but minor compatibility problem. Run the game with 'fall z.cfg' instead of 'dagger'. Alternatively you can try using http://www.gamesas.com/bgsforums/index.php?showtopic=1025422 to run the game, too.

thanx, ill try it out.

Worked for me. Thanks