There is a virtual CD program similar to daemon-tools that works on windows 7...
Magic disk.
Google how to install windows 7 without cd and it will tell you and give links,
By the way did you all know that you can install windows 7 VIA a USB flash drive? All you have to do is download your .iso of whichever build you are going to install, then download and install Magic disk, mount the image just like you would in daemon-tools, then copy all of those files to your thumbdrive. should boot just like that. (Need about a 4 gig thumb drive for it though.)
PS: I would much rather have daemon-tools than Magic disk, especially since that is what I have used for years, but I can't seem to get daemon-tools to work with win7.