I am not sure why you would get an "Illegal read" error. The ISO could be bad, but since you can play it single player that kind of rules it out. You could try to reinstall to see if that makes a difference.

Joel: I have not experienced a noticeable slowdown when running Dungeon Keeper through dosbox, nor any other game. It could be you are experiencing lag due to dosbox not getting enough cpu cycles or you have a high frameskip which may be more noticeable in an fps. Try hitting ctrl+f12 to increase your cycles or use a frontend like D.O.G. to manage this for you. If that doesn't work then maybe you should free up system resources by closing programs you may have running in the background.