Can you explain some more details please.
You say you want to create an ISO file - but why? Are you trying to make a bootable CD?
One easy way to make and test a hard disk image is to use RMPrepUSB
1. Format a USB Flash drive as FAT16 (no overrides) and minimum capacity that you need - e.g. 12MB
2. Add freedos files as required + Install grub4dos using RMPrepUSB
3. Test using RMPrepUSB F11 QEMU test button
4. When it is all working, use RMPrepUSB Disk->File to make an image file - e.g. hdd.img
5. Save hdd.img to your hard disk
To use the hdd.img, make a slightly larger USB Flash drive volume (say 14MB - it is easier if you have another USB flash drive to do this with), then
add the hdd.img file and install grub4dos and add this menu.lst file.
Test using RMPrepUSB F11.
title HDD.img\nFreeDOS hard disk image file
map --mem /hdd.img (hd0) || map /hdd.img (hd0)
#look for a file inside the image and set device as the root device
find --set-root /kernel.sys
#load and boot using DOS bootloader
now make your ISO file by following these instructions
and using the makegrub4dosiso.cmd script.
Test using RMPrepUSB CTRL+F11
Finally burn your CD.
P.S. You may also find this