A few different applications can do this, one popular one is
Nero.  In Nero, you'd proceed as you otherwise would to burn
a CD or DVD, but in the menu "Recoder" -> "Choose Recorder"
setting you would choose "Image Recoder" or similar instead
of the optical drive, then proceed as usual but when it
comes time to save the file, in the drop down it defaults to
a Nero Image (*.nrg) but you want to pick ISO instead.

This may not work to suit your need to fake the disc because
it may not be want the application is looking for, it maybe
trying to identify the original disc not just looking for an
optical drive with files... but I suppose it's worth a try.

MagicISO's marketing pitch at http://www.magiciso.com/ plainly states
that it can create ISOs.  Do you have a full version of that software?

Nero 6.6 (and most likely subsequent versions) can.  You go about
building a burn like you normally would, but select "Image Recorder"
instead of a physical drive.

Deep Burner, a free burning software, also professes to "build" ISOs.  I
don't doubt that it does as the ISO format is not proprietary, nor
terribly complicated.

 Most DVD writing/burning programs let you create an ISO
image file on your hard drive, as an option to actually burning
a disk directly.   I use the DVD Writing Tool in TMPGEnc
DVD Author 1.6 (TDA) to write data DVDs and make .iso
image files.

Luck;
   Ken

Folder2ISO

Google for it...