In the remote chance that someone cares I was able to get Daggerfall to install off of the cd running Windows 2000 professional and service pack 2 (which I'm not sure made a difference or not).
1. Grabbed fastvid 1.1 and extracted to a temp directory.
2. Pulled up a normal command prompt and changed to directory in #1.
3. ran fastvid with no options - let it run through it's prompts (I chose no, no and yes). It actually bombed out, but that's okay.
4. Still in the same command prompt (full screen, by the way), changed over to the cd-rom drive (I'm using daemon-tools 2.6 to emulate the cd, but only because I hate taking up my cd-rom drive with game cds. I swap 'em around too much). Ran install.exe.
5. Go through the motions, chose huge install, no sound.
6. Exit the command prompt.
7. Once installed I executed the setup.exe in the install directory from Explorer (using the right-click menu and choosing to run with vdmsound - if you don't have vdmsound then don't run the setup.exe program) and let it detect my "sound card".
8. Same thing - right click in explorer on dagger.exe and choose "run with vdmsound" (or just click it normally if you aren't running with sound).
9. Et Voila.
I noticed fastvid works on some dos games that I couldn't get working before.
Maybe this routine will help with other obstinate games.