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This was fun (not) to install under VMware.
It turns out that the INSTALL disk (or SETUP disk if you are using a different source) really doesn't like the VMware IDE hard drive emulation.
If you use that, the installation floppy's boot code simply ends up rebooting infinitely.
If you try a SCSI HD instead, you will go through all the (quite horrible) installtion process only to find that in the end the MS-DOS 4 SCSI driver installed on the HD doesn't play well - executing 'illegal' SCSI instructions, or something.
In the end I started from scratch and used the VMware SATA HD emulation: Pay dirt! The installation process worked, and I could finally boot into a HD-based full installation of MS-DOS 4.0. What a rigmarole!
@BigAlUK Brilliant! Thanks for the comment, I had the same issue.