I'm currently having the same problem as well. I'm going to put this bit of advice at the top instead of the bottom like I originally did, try running dosbox in compatibility mode for an older version of windows. It did not fix my problem, but did for another user. Else, follow what I did below to get the game running (though the issue still needs to be fixed.)
Here is what I did to get the game installed, you're going to open the location where DosBox is installed, and you're going to find the file called DOSBox 0.74 Options - Open that file and it will bring you into notepad. Scroll all the way to the bottom of that document and locate where it says [autoexec]. Then, make it look like this :
[autoexec]
# Lines in this section will be run at startup.
# You can put your MOUNT lines here.
Mount c C:\dosbox -freesize 1000
mount d c:\dosbox\Daggerfall\dfcd -t cdrom -label Daggerfall
d:
install
(the mounting will vary depending on your install location, my dosbox folder is located on the c drive.)
Save the file and then run dosbox. This will take you through the install, tell it you agree, install the game to your hard drive, just install to the c drive that it prompts, and then when it comes to the sound card, DO NOT try to configure it. Since you need your keyboard it will not allow you to do anything once you're in there, so just skip it. It will bring you back to the black prompt screen that you won't be able to do anything with, alt tab out, and then exit the program.
Now, go back to your autoexec, and make it look like this:
[autoexec]
# Lines in this section will be run at startup.
# You can put your MOUNT lines here.
Mount c C:\dosbox -freesize 1000
c:\
cd dagger
fall.exe z.cfg
That will now run the program. However, mine is still being unresponsive, so it's kinda a crapshoot at this point. But I hope this gets you a little closer to solving your problem!