How much space did you allocate? 800 should actually be enough for Daggerfall, but try allocating 1200 MB.
Also be sure to use the -freesize xx option before you mount any drives, automatically or manually, because if you use it after mounting, it won't have any effect on the already mounted drive.
Though I've got myself no experience with frontends, I had heard here and there that some games have problems if a frontend for DosBox is used. Might be worth trying DosBox without frontend, even if you're not used to the Dos commands. It's not that hard to get into it, here're enough threads with would be helpful there.
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