At the moment DFR uses the GetShortPathName Windows API function at least in two areas:
1. Making short names for cd commands inside DOSBox (via autoexec section). - This will hopefully (still not started working on this) not needed anymore in 0.6.0.
2. Creating the mount commands because the DOSBox command line is limited to 134 chars in 0.72. (Because I have heared next DOSBox version will not have this limit anymore, there is already a swich to turn this off in the setup dialog).
This means using next version of DFR together with DOSBox >0.72 should be able to work with short names turned off.
In general I think more programs using short names in some ways than one would think of. For example one can think of an application trying to check if a user given path is similar to an other path and the program don't know if the user given path is short (perhaps because the path is given via the command line and not chosen from a Windows file select dialog). So the program could try to make the internal path short and compare this with the user path, too. And I don't know if such a program would handle a "There is no short name" error from GetShortPathName the right way. So even if you are running 32Bit-Windows7-applications only some could rely on the existence of short names.