Ew, these are the pits. Windows has a DOS emulator, which isn't as good as the real deal. I will proceed like you have the real game and not a hacked version of ee2. If it's hacked, proceed to the next paragraph. Otherwise first go and download all of the game patches. I doubt it would help but it might not hurt to update your directx and video drivers. I agree with Angrycrustacean's suggestion to kill all the background processes you have going. By the looks of it you have over 512mb of background garbage using up Ram and that's really too much. It's either malware/viruses or you have all kinds of little tray icons running that you likely don't need going all the time. If it's either malware or viruses that's enough to cause a funk.
Ok on to the DOS emulating. Whichever file is opening up MS-DOS hopefully isn't during the middle of the setup, meaning it is something you're clicking on directly and not a windows setup file that opens the emulator halfway through. If this is the case you should be able to try this, it may or may not work. Find the icon to the program, right click and go to properties. At the top there is a tab that should say "compatibility". Try running it in compatibility mode for Windows 95. This may increase the allowed memory just enough to get the program to run. Technically it's not really using memory the same way, you could put in as much ram as your system would take and it wouldn't fix the issue - it's just how the software is allowing the memory to be accessed.
If this doesn't give you enough memory to run it, an alternative would be to download a program like Dosbox. It's just another open source (aka free) DOS emulator which may do what the windows emulator won't. (sourceforge.net is a safe source)
Now if we want to go into the shady aspect of this, it's also a common problem when it is an illegitimate file. Users in Kazaa/Ares/etc. will often change the name of an iso file to exe to make the file easier to find. When opening this file in DOS it will give you this error. If you rename the file from an exe to an iso then open the file using Nero or another compatible burning program it just might work. (legal disclaimer, I am not responsible and all that jargon

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