If you check the info of the install-icon and you read "c/install" it's read from the CD. "c/" is the catalog on the unit that you are reading from. If it would have said "sys:c/install" or "c:install" it would have read from the harddrive.
It's logical that it reads from the cd as well since the user might have OS 3.1 installed with an old, incompatible, installer.
Have you checked that you have the latest version of AsimCDFS installed?
