It's from Falsobordone
That's (to use their own words) one of Sweden's foremost medieval ensembles
http://www.falsobordone.com/
You might have found that out by
a) reading the doc that come with the game, or the credits ingame - somewhere they
are mentioned I'm sure.
b) searching this forum for "background music" .. would have taken you to threads from 2003 where exactly your question was already the topic
I'm not sure which song it is exactly, but look what I've found in Falsobordones webshop:
Cantigas de Santa Maria is Falsobordone's first CD from 1998 with music from the 13th century manuscript with the same name. According to legend, all songs (over 400!) were composed by king Alfonso X, "The Wise". Among the 16 cantigas on this recording you'll find both vigorous bagpipe dance tunes and sweet harp songs, all in a unique medieval Spanish mood...
Music from this CD is featured on the soundtrack to computer game Dominions 2 by Illwinter Game Design! Read more here... (link to illwinter.com)
You know, you're using the internet.
Yours is the power of google.
Use it !