Hard to say what's going wrong with your program.
If you're handy with the debugger, get some debugger-enabled dosbox
and see why it doesn't continue. Maybe logging the int21s that happen
next to the file-lock thing, and tracing if something is going wrong there.

Could it be due to 32-bit file access?

Reason why I asked, is I ran across something that said dosbox is not 32bit access capable. I also got Window 3.11 working, and I can't remember where but it lists the drives and says 16bit access for them.

Is this true?

Would running dosbox on a FAT32 partion make a difference instead of NTFS?

It doesn't make any difference what kind of partition you run DosBox from, or an emulated program from, as dosbox doesn't emulate direct access to the disc, only to the files (unless you're using disc images, for eg. booting a real version of DOS within DosBox). Have you checked to make sure the read-only attribute isn't set on any of the files your emulated program is trying to open?

> and says 16bit access for them.

Yes, as it uses the dos realmode subsystem (16bit).

Hard Drive image with real DOS sounds interesting. Can hard drive images be written to?

yes, of course but there is still no 32-bit support 😀
Look into the Dosbox guides, there is a guide on how to set this up.