Originally Posted by The Fifth Horseman

This error should only occur if the game is unable to find its' data files - either the path to the game directory inside DOSBox is different than the path specified in lions.cfg or your archiver was set to ignore the directory structure inside the ZIPs when unpacking the game.

Try replacing the line in lions.cfg with this:
CDPATH=.
(Yes, that's a period after the equality sign)

If that doesn't work, please show us a screenshot of the contents of your C:\TMP\LION directory.