It depends on the particular package. If you do this with Office 2007 then it will work fine - the first part of a 2007 install is building the local installation source (basically, it caches the entire CD on the C: drive and then installs from there). Earlier versions of Office don't work so well; they need access to the server.
Originally Posted by kmount
I think that MSI installs generally run in the context of the machine account, not the user, so even when you do add components you should be OK if you only give computers access (but I'm not absolutely sure; I've just installed a package and watched the processes - there seem to be 2 msiexec processes working, 1 running as me, 1 as local system; both "do stuff") I do know that in the past I've had the network set up so that users didn't have read access to the MSI share and it did all work.
I'm inclined to agree. The whole MSI model is supposed to be that users can install things without needing special permission to, like adding extra features, but by the same token I've never conclusively tested it.
In answer to OP, though discussion has moved on from this, the link below has a document explaining how to alter an msi file location without recreating the msi. It is part way through the document and it is not very fun to do, but here it is :)