Here are the installation instructions taken straight from the Readme:
Edit by Ghreyfain: Updated as of March 14th, 2005.Installing 1) If you haven't already, perform a Full Install of BG1. This could mean BG1, BG1 plus TotSC, or BG: The Original Saga, depending on what you've bought. If you have the 6 CD set of BG1 (or 5, without the expansion), this means you should choose "custom install" and select everything. Even movies.
2) Apply the BG1 patch from Bioware only if you do not have BG: The Original Saga.
3) If you haven't already, perform a Recommended or Full install of BG2. Throne of Bhaal is supported but not required.
4) Depending on what you have installed, apply the BG2 patch or ToB Patch from Bioware.
5) Extract bg1tutu_v(x).exe to your BGII directory. (Where x is the version number you’ve downloaded.)
6) Using a text editor like wordpad (don't use notepad, it's very confusing), PFE, ConTEXT, etc., go to your bg1tutu folder and open up the file named "configuration". You need to edit the two lines named ~source~ and ~target~. If you installation of BG1 was at C:gamesBG1 and your BG2 installation was in C:gamesBGII, your configuration file should wind up looking like this:
~source~ [ ~C:gamesBG1 ~]
~source.variant~ [ ~BG1~ ]
~target~ [ ~C:gamesBGII~ ]
~target.variant~ [ ~BG2~ ]
*Note that the path is case sensitive. Capital and lower-case letters matter.
7) If you haven’t installed TotSC, download the file
http://home.arcor.de/varana/RNDEQUIP.2DA into your bg1tutubg1-override folder.
Install any BG1 mods/upgrades that you will want to use in your BG1 directory.
Note: Most minor BG1 mods should convert correctly. DSotSC does not.
9) Double-click bg1tutu.exe (it will be in your BGII directory) and let it run.
10) Just follow along after this and make whichever choices you wish.
11) Once BG1Tutu has finished installing, you should download and run Tutufix. It is absolutely required that you install at least the Core Bugfixes component.
12) After Tutufix has been installed, you should install any mods specifically tailored for Tutu. See the BG1Tutu Enhancements page for a list.
13) If you want BG music, copy BG’s music folder into your BGII directory. (Make sure to rename BGII’s music folder to something else first so that you don’t overwrite BGII’s music.)
14) Play BG1Tutu by running “bgmain.exe” in your BG2 folder. It may prompt you for your BG2 CD.
15) Have fun, you made it!
Uninstalling (Reverting back to BGII)1) Run bg1tutu_restore.exe, which is located in your BGII directory.
2) Delete bg1tutu_restore.log.
3) Play BGII normally.
4) Optional: If you want to *completely* get rid of everything, then also delete the following files after running bg1tutu_restore.exe:
- bg1tutu folder
- bg1tutu.exe
- bg1tutu_restore.exe
- setup-tutufix.exe
- setup-tutufix.tp2
- BG1Tutu_Readme.htm