Hi,
This is a bit of a dirty step but it should get you past the issue.
if FileExists(ExpandConstant('{sys}\libmysql.dll')) = False then
begin
if FileExists('c:\program files\mysql\mysql server 4.1\bin\libmysql.dll') = False then
Basically, thats saying if libmysql.dll isn't in your sys dir, it looks in the "default" install location of mysql for it. If you bodge copy the file to that location it might work, but no promises :/