Alan,
That's correct, it truly isn't an option to have it installed.
So if we decide to go with the second option, which at this point seems like our last resort, we have a couple of questions regarding this:
1) "remove the references from the license.licx" file. So this would mean we leave the license.licx file that gets bundled with the solution – empty, is that correct?
2) Given that we do copy the assemblies from a licensed install, can we be sure that the functionality of the application will in no way be affected?
Thanks for your help!