To clarify yes the Windows executable works. The DOS executable works under windows, but the DOS executable didn't work under DOS. This problem has been rectified by using DOS32A instead of DOS/4GW.

I did try running without any kind of sound. It had the same result. Even without any drivers installed and no soundcard selected in the setup program.

I understand it only addresses some of the issues you brought up, but there is a simple no-CD crack for Descent II DOS, which will skip the CD check, but still allow you to view movies and possibly listen to CD audio:
https://cloakedthargoid.wordpress.com/no-cd-descent2/

I haven't figured out how to crack the Setup.exe, though.

For that matter, there's DXX-Rebirth, an engine rewrite which ought to fix any problems the Windows version may have.
http://www.dxx-rebirth.com/

Ooops, sorry for only noticing these replies now, the notifications landed in my Spam folder for some reason.

I'll definitely try that no CD crack later, that would pretty much resolve my remaining issue completely. I only sidestepped it by having a Descent 2 disc in each drive.

I know of DXX rebirth, however it doesn't want to run on Windows 98SE and 2k, so using it on the original hardware is not really possible. But thanks anyway!