So, FreeDOS 1.2 RC2 and VirtualBox 5.1.10 were released at the end of November. I'm happy to report that the audio shudder has gone away. I'm not sure which update that can be attributed to, but it's welcome none the less. I still can't seem to get the MIDI to work... oh well.
Edit: Had some problems with the retail version, but I've got it working fine now.
You will want to edit the fdconfig.sys file as follows:
SET DOSDIR=C:\FDOS
COUNTRY=001,858,C:\FDOS\BIN\COUNTRY.SYS
LASTDRIVE=Z
BUFFERS=20
FILES=40
DOS=HIGH
DOS=UMB
DEVICE=C:\FDOS\BIN\HIMEMX.EXE
DEVICE=C:\FDOS\BIN\JEMMEX.EXE
SHELL=C:\FDOS\BIN\COMMAND.COM C:\FDOS\BIN /E:1024 /P=C:\AUTOEXEC.BAT
SHELLHIGH=C:\FDOS\BIN\COMMAND.COM C:\FDOS\BIN /E:1024 /P=C:\AUTOEXEC.BAT
Most of the above is already in the FDCONFIG.SYS file that gets installed with FreeDOS, you will just need to delete out various menu options that you won't need when running Blood anyway.
Note: if you have problems with Blood crashing when attempting to run at higher resolutions, try swapping the load order of the DEVICE lines:
DEVICE=C:\FDOS\BIN\JEMMEX.EXE
DEVICE=C:\FDOS\BIN\HIMEMX.EXE