Some time ago, I installed Red Spine to a VBox system (under win 10). I used a 250 MB virtual disk, and 48 MB RAM (a HUGE system, for warp 3). I had no trouble with the diskette images, I think I just mounted the diskette images, as they exist on the CD (after copying them to the hard disk). You would need to create diskette images, if you have an all diskette installer, or find them on the internet somewhere. Chances are, that there will be more bad diskettes, if that is the case. Diskettes are probably well past their "best before" date, and a lot of things could have damaged them, in one way or another.
My guess is that error 3 is a missing, or corrupt file.