When playing the game press esc. to the save and load screen. Yhere is a detail bar on it. Lower the detail and things will get better. Thats what I had to do.

Have you tried "output=overlay"?
For my Arena configuration, this makes a difference, compared to "output=surface". With "cycles=25000" and details on max, Arena runs quite smoothly.
Regarding hardware and OS, I'm using a 4GB RAM Vista PC with resolution 1280x1024 and a Radeon 3750.

Well, the problem is here:

Bethesda

🤣

/me RUNS FOR THE HILLS

Try setting cputype to pentium_slow, see if that helps somewhat

Here a quote from the 1.06 patch notes (i.e. this is independant of DOSBOX):

"A Pentium slowdown has been included in the patch. To slow down game play for a Pentium, type:
arena -delay:#
at the DOS prompt, where # is an integer between 1 and 9. 1 causes the
least delay, 9 causes the most delay. We recommend 4 as a good speed.
If, after starting the game on your Pentium using this feature, you find
the speed still is not right, you may adjust the delay using the + and -
keys."

I'm not using the delay parameter myself as I'm happy with the performance of Arena, but you may wish to experiment with it.
If you do - let's know how it works.