When I do the Upper Potomac Dulcimer Fests, I use a condenser (usually an AT MB 4000 or Shure BG 4.1) on a boom over the center high end of the dulcimer at an angle converging with the angle of the dulcimer at about 30 degrees. Keep it out of the way of the hammers, and watch any increase in angle that would give you monitor feedback.

Try not to use floor monitors as the dulcimer body will block most sounds (Maggie Sansone is famous for not hearing a monitor that is screaming at her). Use a Hot Spot to the right or left of the top edge of the dulcimer, but keep the dulcimer low in the mix, and ensure that the rythmn instrument has some prominence, to keep everybody together.

Frankly the best pick-up I have found is a plain ol Dean Markley Acoustic pick-up (little round wooden thing stuck on the bottom of the dulcimer with putty - move around until you get the most pleasing sound). If necessary run it through a LL Baggs EQ and DI to clean it up and convert to balanced. If you have enough channels you can use the pick-up to Aux to the Monitors and leave the condenser to add some brilliance without worrying about feedback. Good Luck!