According to the compatibility list (link), there are multiple ways to configure DOSBox and the game where the sound works; but having both configured for SB16 apparently does not work. There is a note in the game's readme, so it could very well be a problem with the game and not DOSBox.

I think the easiest thing is to use DOSBox's default settings and configure the game for SBPro, port 220, dma 1, irq 7. Using an SBPro config will allow stereo if there is any support for it, whereas an SB config will definitely not have stereo. If the sfx volume seems low, setting sbmixer=false should help with that.

... I hate simple answers like that... Makes me feel all the more stupid when it comes to stuff like this. Also, I hate having a horrid Google-foo, else I might have been able to find that link you showed me before asking. Anyway Thanks a TON, sound is now working fine!

What's sad is that I already had the game on SBPro, Port: 220, dma: 1, and irq: 5 (as I said, I had played around a bit with the setup a little)... To think that all I really would have had to have done is change one little number.

I have noticed sb16 works with DeviceID = 0xe016

I have noticed that battle cruiser 3000ad saves DeviceID = 0xe016 in .cfg file, even though its .ini file says
Device003 = Sound Blaster 16/AWE32 , 0xe015, 0x220, 5, 1, 1, Yes, Yes

daggerfall saves DeviceID = 0xe018

Don't know what's going on here.

btw, real sb16/sbawe32/sb32pnp cards behave like dosbox in dm2 (work with 0xe016, doesn't work with 0xe015)

Based on the IDs in the HMI driver files:
0xe015 = SB16 8-bit mono driver
0xe016 = SB16 8-bit stereo driver
0xe017 = SB16 16-bit mono driver
0xe018 = SB16 16-bit stereo driver

Probably not important to know what the problem with the 8-bit mono driver is when the behavior is the same on real hardware.

One more thing i noticed in some other games using HMI that I tried, is that IDs are determined by .ini:
Stereo = Yes/No
16Bit = Yes/No
but not in DM2.