First things first. Do not mount the pre-existing directory as your C drive.
Mount an empty directory. Then use IMGMOUNT to mount the ISO as your D drive. Then install the game.
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Am I supposed to burn an iso image into a folder and mount the ISO folder in my DOS directory? Am I supposed to mount with DosBox at all?
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If you think it will help, then yes - make an ISO of the game disc and use IMGMOUNT to mount the ISO with DOSBox.