I got the game to run on Windows 8.1 pretty much OK, but it does involve some messing around. I haven't bothered installing using supplied installer as I simply don't like running these ancient installers on modern flavors of Windows.
Anyway, since you can't seem to install it using installer anyway, you'll have to manually extract the game from CD. To do that, you'll need to download UniExtract from here.
There are two verisons, the one with installer and the portable one, I went with the installer option. When you have that installed, open Drakan CD with Explorer and then open the folder Setup. Inside, you should see file named data1.cab (or just data1, depends on your settings). Right click on the file and select UniExtract Files... In the window that opens, change the destination directory to wherever you want the game to be installed eg. C:\Games\Drakan but avoid installing to any Program Files directory, otherwise you'll have to set the game to run as admin for the savegames to work properly. Click OK and voila, you have the base game installed.
But you're not done yet, you still need to install some patches for the game to work better. First, get official 445 patch from here
and unzip the file to some temporary folder. In that folder, you'll see file data1.cab, which you have to extract the same way as you did with the data1.cab on Drakan CD. Finally, download AiO patch from here
and extract files Drakan.exe and Dragon.rfl to your game folder.
This should be everything regarding installation and patching. Post back and let me know how it went and then we'll discuss further issues.