Checked...
1. Full version is DOS (DOC4GW totally gave it away). So most probably you need DOSBox to start it. Anyway, it totally works in DOSBox.
But there is one problem here. BAT (that you starting) is trying to start c:\3skulls\WESTERN. And it means that file WESTERN must be in the c:\3skulls dir. And to guarantee _this_, you must mount upper dir as C: (for example, if your game is in d:\games\3skulls dir, you had to
mount c d:\games in DOSBox) before starting the game.
Other way around is to change the path in the .BAT, obviously in the any text editor.
But I used the first way.
2. Installation message basically means "We didn't found needed installation module in the library KERNEL32.DLL". And as Kernel is the fundamental Windows module, chance is, you have too new Windows. No way to resolve it, I fear (it isn't Win3 that can be emulated in DOSBox, as there is no 32-bit version of Win3. Most probably it's Win98). Well, you can try virtual machine with Win98, if you insist.