It has to be a bootable DVD.
You need to use the .iso image in a program that will create that for you. I believe Technet explains this in some detail:http://www.microsoft.com/windows/windows-7/get/installation-instructions.aspx
"The RC download is an ISO file, which you'll need to burn onto a blank disc before you can install it. To do that, you'll need to use software designed for burning ISO files.
In addition to commercial ISO burning software, there are free programs such as ISOBuster and Active ISO Burner. To find one, go to a site such as Download.com or Tucows and search for "ISO," "DVD," and "burn".
Follow the instructions that came with your program to create a Windows 7 RC installation disc."