Outrage's Jeff Slutter made a post to the DBB saying "that he forgot to include a DMFC.lib in the new version of the SDK. According to post, the D3SDK 1.0 is not compatible with MS Visual C++ 4.x and 5.x." thanks The Descent Chronicles. Here's the deal on how to get it working:

If you have 4.x or 5.x, the fix is simple. Bring up a dos prompt and change directory into your d3-sdk's lib directory (where dmfc.lib is located). Then execute the following: lib /DEF :Dmfc.def /NAME :Dmfc.dll /OUT :Dmfc.lib

After this executes, you'll have a new dmfc.lib that will work with your compiler. If it can't find lib.exe for some reason, do a find in files for it, it's somewhere on your harddrive (assuming you have your compiler installed correctly).