It's hard for me to imagine a floppy disk version of The 7th Guest. A big part of its appeal was the multimedia features that CD-ROM drives were just starting to make possible (at the time).
I'll list out the commands I use to install and running the game for those that are struggling. The path and filenames are what I used, substitute your preference. Note that I put the 2nd disc first in the mount command because the installer is on disc 2 (on my discs). For install options I choose the default c:\id\t7g install path, SVGA video, SBPRO2 audio.
MOUNT C C:\DOSGAMES
IMGMOUNT D C:\DOSISO\T7GD2.CUE C:\DOSISO\T7GD1.CUE -t iso
D:
INSTALL
C:
CD \ID\T7G
T7G
Hit Ctrl-F4 to switch discs as requested by the game. A bit of a procedure, but I've encountered worse. If the game is still asking you to insert a disc when it's already selected, maybe your image is flawed in some way.