Yes - your right I didn't understand.
Your situation is most perplexing. I had no trouble installing the game with my copy and, when prompted for the CD (even though the copy was in the drive) I knew it needed a fixed .exe to correct this. After everything installed, I just patched it to 1.4 and then installed the 1.4 fixed .exe. I can't think of any good reason why you are running into problems, but then again I'm no expert.
Sorry I could not have been more usefull.