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You need a CD to create a iso file. It could then be mounted to a virtual drive. See Macrium Reflect FREE Edition - Information and download it can create a virtual drive.
Hi there
just adding to the advice here
Once you've MADE the ISO you can use a FREE application to mount this as a "Virtual Drive" which behaves just like a normal DVD.
I use this a lot to play DVD's on a Netbook when I'm travelling.
I use an application (AnyDVD -- not free unfortunately but cheap enough) to make an ISO of the DVD to an external USB drive or stick. AnyDVD will also change the region code to 0 so you can play the DVD anywhere.
I then mount this with Alcohol 52% and play the DVD with VLC just like a "Real" dvd.
You can also mount things like Office DVD's and install from the image iso.
Here's a link to the Alcohol 52% application
Download
BTW this application will also mount NERO .NRG images as virtual CD/DVD's as well unlike some of the other "virtual drive" emualtion software.
Cheers
jimbo