Here's an explanation of what a Block Device is and why it is not a problem for your CDROM to be a block device.
The best approach to installing Windows into a VM is probably to find a utility you can use on your PC to make an .iso file from your Windows media and then upload that .iso to the datastore. Create a virtual CDROM drive in the VM's settings, and connect it to the image file. The VM should then boot from the Windows image.
Cheers,
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Darius