<font color="darkgreen">Ive seen some product xml files on this site that have php file nodes or what seems to be installing them I thought.</font>

No... unless it contains functions you'd like to use during the installation process, there's no need.

<font color="darkgreen">Ok then how do you do an installation from just an xml file?

I have php files, templates, plugins, and phrases. I think they all should be in the xml file except the php files?</font>

Once you've set all your templates, plugins, and phrases to your Product (through the dropdown menu I talked about earlier), just go to Product Manager and Export your XML file through the Dropdown menu next to your Product.

This is what the end-user imports into their board; installing all the templates, plugins, and phrases, and executing any installation queries.