Normally, I would say your iso image is corrupt. But it strikes me as weird that Daggerfall is acting up just the same.
For testing purposes, I’ve grabbed an iso from archive.org, and it worked out of the box: create new profile, enable cd-rom, mount the image, chose install.exe from the image as setup file, save profile.
Then edit it again, and launch the setup. No need for loadfix, and it installed fine with default settings. Game then launched and played without any issues, too. ?