Windows 7 most likely will detect the phone and install the drivers. If not go here: USB and PC Charging Drivers - Motorola Mobility, Inc. USA
Power down and do it again. I know I keep saying that, but the process usually takes a few tries. If it keeps saying it didnt mount after several tries then something may have gone wrong in the previous steps so you would have to start over. Usually when you reach the stage where you're at it should mount the external sd card.
That is strange, you should be select install from external and then just chose the zip you put on the sd card.
Yes it has to be on the external card.
If you have a card you can use an adapter or another phone to put the zip on. Then stick it in your D4.