Original Starcraft I needs CD to run. It use files from INSTALL.EXE too... So installing Starcraft is not needed!

INSTALL.EXE is like self extracting MPQ archive. For more about MPQ archives see wiki: http://en.wikipedia.org/wiki/MPQ

Startool (part of Stargus) can read MPQ files. It extract data from INSTALL.EXE and then convert it to Stratagus format.