I have dk1 and deeper dungeons. I have 2 specific issues. The first and fairly trivial is I can't shut the music off in game. I have pulled the sliders back but it never turns down or shuts off.

The second and bigger problem is in game lag. The game has never crashed on me, however sometimes while playing (fairly frequently) the whole game seems to experience a several second slow down. It affects everything from picking and dropping creatures to screen scroll. I haven't noticed it happening at any specific time, though it is frequent in combat. I'm on a laptop running win 8.1 does anyone else have this issue, or come across it in the past.

Side note, like TA is there a community written patch somewhere to fix / add in a skirmish mode?

You could try using KeeperFX fan made expansion. It might fix your lagging issue. Here's a thread on GOG about it:
http://www.gog.com/forum/dungeon_keeper_series/keeperfx_hires_dk1_latest_builds_and_install_instructions/post1

KeeperFX disables the music in GOG's version by default. If you don't want to use it, you can edit dosboxDK_single.conf in the game's folder with any text editor and delete the line "imgmount d "..\game.inst" -t iso -fs iso" to remove in-game music in the original game (make a backup copy of dosboxDK_single.conf first)