I cant remember. But I do remember the days of starting the game in dos. lol.
I'm interested to hear if DaggerfallSetup works on Windows 7 if you're still interested in the game.
If it does work, to improve the graphics open up the DosBox.conf file in your /Bethesda/Daggerfall directory with a text editor
Scroll down to
fullscreen=(Whatever it says here)
and replace it with
fullscreen=true
And also
fullresolution=(Whatever it says here)
and replace it with
fullresolution=1366x768 (or whatever your desktop screen resolution is)
Just below there you will see, and for improved graphics should change
output=(Again, whatever it says here)
replace that with
output=opengl (this may vary based on your video card but I think most support OpenGL these days)
While you're at it, scroll further down and you will see
scaler=(Whatever it says here)
and replace it with
scaler=3xsai
This final setting will make the game look much better and this filter will allow you to fullscreen in widescreen (as opposed to the 2xsai usually recommended).
DaggerfallSetup uses DosBox and with DosBox you can hit Alt and Enter at the same time to switch between fullscreen and 320x200
With each new game you create save the file and then modify it with the Eye of Argonia program (included with DaggerfallSetup) to max out the draw distance
I also find that remapping the controls drastically improves gameplay for me. I use WASD controls with mouse look enabled. Also, I find melee much easier if I just keep the right mouse button held down while I slash instead of repeatedly depressing and releasing the RMB with each stroke