Yeah, that's all one bug -- when a guy picked another wounded guy, it would call the stuff that frees them from bondage in case they were stuck to a chain or in a cage. Inside there, it checked if they were in a cage (but not a chain) when deciding to make them happy or not, so everybody was made happy. Not that you shouldn't be happy when you are rescued, but it's the wrong thought for it. I think Demon noticed the thought sitting in the rescued guy's head, so it was pretty easy to find after that.
It should work on Windows 98, though I haven't tested it there. That should be enough memory, as long as you aren't running a ton of other programs. The speed issue is of course the main problem, and I haven't had access to anybody with a computer running at less than 1GHz, so far as I know. I think the early game should be fine and any lag should creep in over time slowly. There are a couple of exceptions maybe -- world generation will probably be torture, but you only have to do it once in a long while, and you can read a book or something since it's not active play. Also, if you don't have some kind of graphicsy stuff inside your machine, the OpenGL rendering might bog things down a lot. I think the curses version of dwarves still runs -- however, curses has serious problems of its own, regarding input in real time games, and I'm not sure of the way around this, though we can fiddle with it if it comes to that.
So, you can try it, and I can try to fix it, and we can continue that process indefinitely until it works. There are certain parts of the game that are always going to be intensive (e.g. world gen, opengl), but the rest is tweakafixable, even if I have to add an option to make the dwarves (even) less intelligent, etc. The best we can do is be persistent and not get discouraged, anyway. Work work work.. . work work work... wrok wrko........