[Quiet Man Cometh]

Sounds like Dungeon Keeper or something Dungeon Keeper might have been based off of.

Was it a European game? If it was, the name may have been change if it make it to North America. That happens. The ones I bumped into most often were Dwarf Fortress, Dwarves?! (that looked the closest) and little RP based things, "A Dwarf Story" and such. I'll ask some of my older relatives and see if they remember much.

Was it a top down game? Side scrolling? Was it European to begin with?

There was on Dwarf game where you solved matching puzzles, like Bewjewelled, but there was no digging. Just an underground city.