I am trying to mod Daggerfall, specifically, I want to get the Daggerfall XL mod. Can I install this mod on the GOG version of the game? What about the freeware version released by Bethesda? Please answer as thoroughly as you can, so that I can enjoy Daggerfall to the fullest.

I'm talking about modding Daggerfall with Gavin Clayton (aka Interkarma) 2 mouth ago.
He is main developer at Daggerfall Workshop and creator of all the programs and tools there

I post here part of his reply on my e-mails:
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You should also check out the following links.

There are a few old DOS-based tools like DAGPIC and DAGPICG that can import image files. These are notoriously fiddly to work with (and error prone), so a lot of patience will be needed. You will find them on the UESP Daggerfall download page below.

[url=http://uesp.net/wiki/Daggerfall:Files#Editors_and_Viewers]http://uesp.net/wiki/Daggerfall:Files#Editors_and_Viewers[/url]

Elder Imagery is an extension for the Vampyre Image Library by Galfar. I believe this can import CIFs back into Daggerfall. I haven't looked at his work in a very long time however, so I'm not 100% sure where Galfar is up to with it. You might have to do a custom build from source.

http://galfar.vevb.net/imaging/doc/html/elderimagery.html

Image Hacking Guide - Covers the image formats in detail down to the byte level.

[url=http://www.uesp.net/wiki/Daggerfall:Image_formats]http://www.uesp.net/wiki/Daggerfall:Image_formats[/url]
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I was looking for something like ZDOOM or ECWolf for Daggerfall. Is this the closest thing to that I can get?

The closest would probably be DaggerXL, as you suspected, but why invest any energy in an incomplete project that is looking like it's dying for years now? The developer doesn't want to share his source code, so there's nothing you can do.

In don't know If the Daggerfall Tools are something you are interested in. You'll have to take a look at it yourself. :)

Thanks for posting about Daggerfall Tools for Unity. I had been keeping my eye on DaggerXL but that has had no activity in years it seems, which was disappointing. I loved Daggerfall back in the time, but the graphics do make it hard to stomach nowadays. Gameplay was great though.

Hopefully Tools for Unity continues!