I used the following:

VDM Sound

Turbo. (works with XP)

Hard drive with 5 FAT32 partitions. (the entire drive with FAT32 not just one partition)

Memory: More than win XP min of 256. 512 or better. I have 1 gig.

Moved the page file to d: partition by itself.

Disabled all start up programs from msconfig.

Disabled all non-ms services from system

Disabled the following MS services: Error reporting service, help & support, telephoney, web client, and auto updates.

Defragged the hard drive 3 times.

I used an ME startup disk with CD Rom support in order to get DF to install on XP C: drive (as opposed to DF XP install patch).

Under display properties I un-checked write combining and set hardware acceleration to basic.

Installed VDM Sound.

Used DF setup and set digital sound to Soundblaster port: 220 IRQ: 7 DMA 1 and MIDI to MPU 401 set to port 330.

Shut off Hard drive write caching thru XP. (Path: my computer\ c: drive\ properties\ hardware\ properties\ policies).

Slowing the Computer down hardware wise:

I went into bios and disabled L2 cache & L2 ecc chk. Then I used jumper on Mother board to set FSB to 100x2 (200) from 133x2 (266). This dropped my 2 gig 2400+ amd athlon xp to 1.5 gig and made it even slower by disabling the L2 cache. Note: Many motherboards will allow you to lower the FSB from the bios mine does not.

Setting Daggerfall.exe properties:

By right clicking the Daggerfall.exe file and going to properties I used the following settings:

Under program tab:

Run box set to maximized and left the close on exit box unchecked.
In the advanced tab I Left the compatibility box unchecked 😁 and let windows manage config and bat files.

Under memory tab:

Conventional memory: total set to auto with protected checked and initial environment set to 2048.
Expanded memory (EMS): set to none.
Extended memory: set to auto with use HMA checked.
MS-DOS protected mode (DPMI) memory set to 4096

Under screen tab:

Used full screen with restore settings on startup checked and fast rom emulation checked as well. I left the dynamic memory allocation unchecked.

Under misc tab:

Unchecked allow screen saver, set mouse to exclusive mode and checked always suspend background.

Under compatibility tab:

No compatibility settings.
Disabled visual themes and turned off advanced txt svc.
Idle sensitivity set to ¼.
Unchecked warn if still active and fast pasting.
All window short cut keys on.

Slowing the computer down software wise:

I used the turbo slowdown program. Just click the program and set a number between 1 and 100. The hard part is finding the right speed. On mine it gives out best performance at 65%.

Starting program:
Right clicked on Daggerfall.exe file and selected vdmsound to run program.

I have run DF for 30 hours now with no CTDs and only one program stopping error caused by vdmsound.
I can even climb, run, and jump backwards. I have done 20 plus quests with no invisible creatures or missing quest items. My CPU is running 5 degrees c cooler and my case is cooler too. The sound and music are great. Especially since the midi no longer sounds like a calliope on drugs. The monsters don’t get stuck as much and the towns people walk! And the speed of movement is great too.