Turey's online installation is meant for upgrading retail FS2 to FS2_Open.
EDIT: Old information, scratch that. Sorry. But if you still want to use the CD's, the rest of my message should work all right... at the very least, it will reduce the run time of the online installer, bu the amount of the Retail stuff included in the download.
The CD's are not useless for you, you just have to do manually what the installer executable would be normally doing - that is, opening the data*.cab files on the disks, extracting the content, and saving it into a directory. It probably isn't as hard as it may sound, although I have never had to do it.
The directory/file structure is pretty in a functional FS2 install. On most basic level, you can just find the following files from the CD's:
root_fs2.vp
smarty_fs2.vp
sparky_fs2.vp
sparky_hi_fs2.vp
stu_fs2.vp
tango1_fs2.vp
tango2_fs2.vp
tango3_fs2.vp
warble_fs2.vp
I don't know what *.cab files contain these files, but you should find the data<number>.cab files on the CD's root directory, and a program named
7-zip says it's able to unpac data from *.cab files, and it's jolly useful utility anyway so grab it anyway.

Once you find the files in the list form those pesky cabinet files, copy-paste these files into Freespace2 directory that you have created.
*After this, to confirm compatibility with your system, download and install FS2_Open Launcher and executable - current versions for Launcher is 5.5a and executable is version 3.6.9, they are found on
this thread in an
archive file... simply extract the Launcher.exe and fs2_open_3_6_9.exe to your newly created Freespace2 directory.
You also need to take care that you have latest
OpenAL installed and have no residual files on your system (unlikely, since you're running Vista, but you never know)... the specific files are nvopenal.dll and some other file, but those only become relevant if the game doesn't work after installing latest (version 1.1) OpenAL from the link.
Now, believe it or not, you actually should have all you need to start playing FS2 with the FS2_Open engine as far as file structure and required other stuff go... with retail graphics at this stage, however. That is where Turey's installer comes in more than handy if you don't want to set everything manually (which is also a viable option, since installing mod directories to FS2 is really easy and teaches a lot of how the game works...)
Since you are running Vista, though, you will need to make sure that you make the Freespace2 directory fully open, like in traditional Windows style, so that users (and executables run by users) have read, write and execute permissions to the directory. Otherwise, there will be problems with stuff like saving a pilot file and soforth, which makes it impossible to get past the sign in screen.
Once you have taken care of this nuisance, start the Launcher.exe. Select thefs2_open_3_6_9.exe file to be executed when you press run, then get yourself to "Video" tab and set rendering device to OpenGL, colour depth preferably to the same as your desktop resolution (32 bit depth most likely by default), and you may as well set the anisothropic filtering to 16x, most of the current graphics cards can afford it easily.
Now you're ready to hit the Run button for the first time. Do so. You should be prompted to write a callsign. Do so. When you do this, the game creates a config file and a directory named "data" onto your Freespace2 directory. This directory contains all the pilot files and caches and stuff, so usually you should just let it be and commit possible modifications via mod directories.
Fire up the first mission of the campaign, just to make sure graphics and sounds and everything works all right at this stage. If it does, great, you should have no problems with improved graphics since you are already using the FS2_Open engine. If it doesn't work... well, troubleshooting ahead.
Assuming everything works fine, you may now quit the game and run Turey's online installer at this time. This utility will automagically download and install latest MediaVP files and quite a deal of mods as well, as long as you have a functional install directory as a basis, which you should now have assuming you didn't have any unforeseen difficulties with hardware acceleration or drivers or stuff. Since it's Vista, these really are pretty much that, unforeseen.
* I am not certain, you need to ask this from Turey, but it is possible that he has already implemented the OpenAL set-up phase to his online installer. In this case, you would be able to run the online installer immediately after pasting the retail VP's to Freespace2 directory.
I would prefer more manual approach since it gives a better picture of what's going on, and installing FS2_Open really isn't that complex ordeal after all. After doing it manually you will have much easier time troubleshooting later when problems occur...
Dual boot is certainly a possibility and seeing how Vista is kinda raw at the moment with especially device drivers being partially non-functional, having a dual-bootable system is kinda sensible as of now... but just to make one game to work it's like killing mosquitoes with a 155 mm field artillery howizer... It may work, but it also flattens a lot of forest and other stuff where it hits.

Godspeed, pilot.
