That's a common user problem with Dosbox. When a game (or in this case a program) was installed or set up "outside" of Dosbox in the host system, paths the installer sets are most often wrong when you mount the game directory in Dosbox.
Easy fix: mount the root of where the compiler is installed to. For example, if it is installed to c:\program files\... mount c c:\ (you will get a warning, though)
Not so easy fix, either install the compiler in Dosbox. Or check the files in the compiler directory if it points to paths that are wrong after you mount the compiler dir, but that will mess up everything again, when you use the compiler outside of Dosbox.
Warning: I'm not sure if the compiler will compile correctly when you use it inside of Dosbox. It could be that it will mess things up.

Thx for that. Actually I've discovered an XP command called 'forcedos' which causes XP to recognise programs as MS-DOS progs. With this I've got the compiler to compile OK.