Make sure you have File Extension active
In case you don't know
http://windows.microsoft.com/en-in/windows-vista/show-or-hide-file-name-extensions


:: Installing Direct System Demo :::
Go to your Duke3D folder

Megaton Edition is located here
\Program Files (x86)\Steam\steamapps\common\Duke Nukem 3D\gameroot\classic\

1. Create a new folder and name it for example, "Direct System Mod"

2. Find and copy "DUKE3D.GRP" and paste the file in Direct System Mod folder.

3. Extract all files in Direct System Beta.rar to Direct System Mod folder

4. Open the Direct System Mod folder and Double click DirectSystem.bat

5. Choose your resolution and make sure it's 32bit

6. Make sure Custom game content directory: says DirectSystem

7. Start and have fun.


FAQ
Q: My pistol, chaingun and enemies don't make any sound!
A: Start DirectSytem.bat and make sure "Custom game content directory:" says "DirectSystem"