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I have a 32GB Kingston USB2+3 drive I normally do simple/old game installs on, however the GOG installer refuses to install!

I pointed it to the DOSBox portable, but it still says "DOSBox not found or too old", but its the very latest version!
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The latest version of Dosbox ? If so that's likely the problem, sometimes the installers don't recognize more recent versions of DosBox.
it shouldn't be, the latest release is almost over 6 months old now...
Yeah, nevertheless this is a know issue.

Check out this this post for a pretty good workaround.