After adding this file the launch goes a little further but still crashes after "Allocating textures ..."
ikantspelwurdz: I encountered this too, and I found the solution. Fortunately I have an old copy myself (it runs on XP but not Windows 7 which is why I got this from GOG). It seems they left out one of the files - starttxt.txt. Without this file, the game will crash in Windows XP, and display garbage text on the main menu in Windows 7.
Just create a file called "starttxt.txt" and paste these lines into it. It should work fine after that - it does for me.
KING'S QUEST
MASK of ETERNITY
Install
Play
Sierra Utilities
Cancel
The King's Quest: Mask of Eternity CD was not found.
Please check your CD drive and restart the game.
Allocating Textures. Please wait...
Please wait
Microsoft Direct Draw
You must be running in 256 color mode or higher.
You can change the color depth from the control panel display icon.