It's surprisingly easy.

1. Search for "DxWnd SourceForge" and go in there. Go to Files, Latest Build, and download the newest build.
2. Unzip it somewhere and run it.

SETUP
3. Edit->Add
4. Name: Pacific General
5. Path: C:\Program Files (x86)\Pacific General\PACGEN.EXE
6. Window Initial Position & Size: 50, 50, 640, 480
7. Ok
8. File->Save

TWEAKS
9. Right click on Pacific General, Modify
10. Main->Generic->No banner
11. Main->Position->Keep Aspect Ratio
12. Input->Cursor Visibility->Hide
13. Input->Force cursor clipping
14. File-Save.

* You'll need to quit the game with Alt-F4, you can no longer alt-tab out of it.
* Adjust Window Initial Position & Size to taste, scale up from 640x480.
* I find 1280x960 works great, but the bigger you get from the native 640x480 the more the cursor blinks.

Thank you for this guide. Do you know if it's possible to switch between Pacific General and other apps while it is running? (Alt-Tab also doesn't really work for me without it, I first have to Ctrl-Alt-Del and can only Alt-Tab after that.)

This works now flawlessly (at least with PacGen using the desktop workspace).

Doesn't work for me. The game still goes fullscreen even after launching it with DXWnd.

I have a feeling it's to do with DxWnd being newer than when OP first tried it.

Confirmed. 2.04.14 from a year ago runs fine, 2.04.78 crashes with workplace area replacement enabled.