This version of the Arachne distribution package requires at least a 
80386-compatible CPU to run, but CORE.EXE, the main Arachne component, is 
compiled as a 16 bit DOS executable. To run in 16bit DOS (either real 
machine or virtual x86), you need to apply the package "16bit.apm", or:

1) get 16bit DJPEG.EXE (e.g., from old Arachne packages)
2) in MIME.CFG, change all calls to DJPEG32.EXE to DJPEG.EXE
3) remove all calls to PNG2BMP.EXE from MIME.CFG

Arachne won't be able to view PNG images in 16bit mode any time soon.
If you know of a compact PNG library available for 16bit DOS, please
let us know about it.