I can't seem to change the resolution of the game either full screen of windowed. It's almost like the game ignores all my changes to the dosbox.conf. The way I have it set up at the moment is:
fullscreen=true
fulldouble=true
fullresolution=1280x1024 (also tried native res of 1600x900)
windowresolution=1024x768
output=Direct3D (was on surface but everywhere suggested to change it)

Any help will be greatly appreciated =D

If you're trying to set the window size while windowed try OpenGl for output.

Ok I tried that and the window resolution changed, but now it crashes after a few seconds. This is how it looks now:
fullscreen=true
fulldouble=false
fullresolution=1280x1024
windowresolution=1280x1024
output=OpenGl

You want to run it windowed and set the window size, right ? fullscreen = false