I resolved this issue myself.
But for the benefit of the dev team and others:
The problem wasn't that Keil C51 was not installed, as it happens it was! However the registry keys which specify the location of the install were missing. I manually added the registry keys and the prerequisites now pass and the kit installer now works.
Projects build and run successfully too.
I think the problem is that the PSoC Creator install did not create the registry keys, possibly due to this being a 64 bit install of windows 7 into a virtual machine.
I should also say, one issue still remains - the 'Download' link given in the Kit installer to download KEIL doesn't work. I have worked around it, but others might still get caught out ;-)
Please update your psoc creator to get latest library and latest component packs.
If u have latest updates then I think there no issue in installing the first touch starter kit plug and you are ready to go.