I couldn't figure out the install/setup program, so I just ran VDMSound on PLAY.BAT and it ran fine. The intro screen was silent, but at the first "choice" screen the music (MIDI) started, and I can confirm that digital sound effects worked as well.
I did notice this message popping up when starting the game:
Check CD-ROM .... in J:
Free 49984 bytes
XMS= 919 k
FM ...... OK
Voice ... OK
You might try this: Start up a command prompt, make it full-screen (Alt+Enter), type DOSDRV to start VDMSound, then type this to start the game:
PAL.EXE >MEM.TXT
Quit as soon as possible and post your results from the MEM.TXT file. Please note, I do NOT have a CD-ROM drive on J: , so I'm not so sure about that part...
Also, try typing MEM /C and post what results you get from that.
Also, do you know what this sub-menu from the install program is saying? I'm guessing that 570k is the conventional memory requirement, that 830k is the XMS requirement; and 623k/31648k are what it "sees" available on my PC.