darktjm: Normally, you can set autolock=true in the [sdl] section of your dosbox.conf. This makes it lock the mouse when you click on the dosbox window. However, Daggerfall is the only game I've played where this does not work. Instead, you have to press the key combo, as mentioned in the above post. Naturally, the dosbox designers placed the key combo I press most often at an awkward position that also happens to be right next to the key combo to kill dosbox immediately without confirmation, which I rarely want. I would recommend rebinding the key to something more sane (I use ctrl-tab).
Oh yeah, if you play full-screen, it will lock the mouse correctly, in my experience, even in Daggerfall.
Did anyone have a problem with the mouse trying to pick up items lying around in the dungeon in the tutorial area ? The game says just click on them, but nothing happens. I have a triangle mouse pointer, so I'm wondering if there is some kind of program bug here, or mouse setting. I can navigate with the mouse easily, just can't pick things up. Any suggestions would be greatly appreciated.