Thank you for your detailed description of the requirements you need to cover.
As you have noticed a Test Studio WPF automation project can be configured in the Project settings
to point to a single application by default. Still, you can have WPF tests in the same project, configured to use another WPF
application by unchecking the 'Use default path' option.
Having the above in mind, and taking into consideration the rest of the environmental requirements, the most suitable approach depends on all these specifics as well. One option is a separate project for the installation exe of the application under test, as you have described in your query. Another possible solution could be a separate folder and test list in the existing project, which contain only the tests which automate the installation process.
Since both options are available, you could choose the most appropriate for you, considering any other specifics. Of course, in case you face any difficulties in adjusting the WPF automation, please do not hesitate to contact me back.