[andrewf]

If you can't ship an MS-DOS "format /S" image, there are several DOS clones available under open source licenses (freedos, rxdos, ...) and lots of proprietary ones targeted at the embedded market too (rom-dos, pts-dos, dr-dos, ...). You might be able to find one with an appropriate license, or buy such a license.

Another option would be to implement the DOS API (INT 21h and friends) in your emulation code, instead of within the VM as x86 code. DOSBox does this (but its emulation code would be under the GPL). DOSCMD also appears to do this and is under the BSD license: http://sourceforge.net/projects/doscmd/