Large hard drives and DOS: DOS 7.x is the way to go. I believe PC DOS 7 and up do support fat32 as well, and are dedicated DOS, not linked to win 9x. Not tested myself but these should be able to install windows 3.1x without hassle.
To get a good DOS 7.x install I did this:
- boot any pc of VM with a floppy drive boot cd capabilities from Windows 98.
- get a floppy disk and use format b: /u /s (as a would become the virtual floppy to boot from)
- copy interesting tools to your floppy disk
( Fdisk, format, Scandisk, debug, xcopy, sys, edit, himem etc )
- insert the floppy disk into the target compete, boot it
- if necessary use fdisk to get fast 32 partition up to the desired capacity. Reboot.
- use either says c: or format c: /u /s to make the hard disk boot DOS 7.x
- copy the contents from the floppy disk to c:\dos and here you have the DOS folder..
You may also get the contents from the windows9x \command folder (on any installed version of win 9x) and copy to your DOS folder. This allows you to get a full blown dos 7. Although it does work, it misses a few things from DOS 6.22 that where implemented better in Windows 9x itself. Like Defrag.
About legal stuff: I do have a few original Windows 95 and 98 CD-ROMs and hardly use them. I get the install files onto a convenient compactflash card and install from there. Among with almost a gigabyte of drivers, so I don't have issues with not finding them.
Those who don't have an original cd will probably find over a dozen "abandonware" sites to publish them, as MS no longer gives a ***. Legality is questionable but for most people it works.