Hi JonnyG111,1) On some machines a warning about the .exe file will always open mainly because of anit-virus protection software. The only way around it is to get a certificate from Microsoft that assures the user the program has verified by MS. Can't tell you how to do this, but if you do find out please post your results.
2) The only format that is considered virus free are PDF files. The main downfall with PDF files is that unless you a considerable amount of money there is no way to protect a PDF from file sharing. There are several providers who claim to protect PDF from file sharing. What these providers don't usually tell you, until you've commited some money, is that they are wrapped in an .exe file--which takes it back to your original problem.
If you want to research how to protect PDF files what you looking for is Adobe's Live Cycle. Adobe doesn't list the price on their site. You have to contact Adobe and the last time I checked it was just north of $40K. The companies who have purchased Live Cycle generally want $500+ USD for each book title.
3) What you didn't mention is if they are paying you a license fee to make your ebook available on a network. Considering the loss of sales you should expect compensation beyond a single book sale.
The first thing to do is ask if there is an IT person that you might speak to regarding the .exe issue. Ask if it would be possible to have him install it after using his favorite anti-virus programs (they usually use several).
There is a steady debate on if ebooks should be released as an .exe file or PDF. The question boils down to one of security, file sharing, and piracy. On the one hand it is convenient for the customer to use an automatic payment system and to automatically get the password. On the other hand PDFs open without any warnings.
The question comes down to if you are going to lose sales because of file sharing (PDF) or have to deal with the warning window that sometimes opens on .exe files. Keep in mind that anyone on the network can copy either the PDF or .exe file. With the PDF it is a lost sale and with the .exe it is a potential sale.