I found this post - wow it worked!!I managed to use the image to load in virtual drive and use the software without copying onto a disk.
Heres how I did it.
Insert CD in drive. Open Alochohol 120%. Click on Image Making Wizard or whatever. Select Safe Disk 2/3 in the drop down menu. Make the image at 1x speed. Dont worry about the errors. This will take some time. Maybe 30 mins.

After image is ready: (The following info is thanks to Pres-sean)
Click on Recroding in Options, click on Emulation and
Check "Ignore Media Type and
Check "Launch CD/DVD Mager without Ignore Media Type function".
Uncheck "RMPS"

Click on Extra Emulation and check "BAD Sectors Emulation".
Uncheck "Sub-Channel Data Fixed and Emulation"
Uncheck "Laser Lock Emulation"

Get an exe file called sd4hide.exe. Google it and you will find it. After image is ready, run sd4hide.exe. Its a small program runs in a small window. Now Load the image in Alchohol's Virtual drive. The the program window show up, Click on HIDE in sd4hide window. Then click on Start in the program. The program will work just like it does with the cd in the drive. I dont know what Restore button in Sd4hide is for. I didnt need to restore it.

I did not need Daemon, or any other program. I just used Alchohol 120% version 1.9.2.

I figured out all this with the help of this forum and I used a mix of different suggestions from different users. Thanks to all of you.