Is it possible for a user to access the XAP installation file of an app installed via the Marketplace? If yes, is it possible to restrict access to it?
I basically have some copyrighted images used in the app, and dont want the users to be able to gain access to it.
Only by hacking (ie. jailbreaking) the phone. So in short, no, users are not able to access your XAP.
On all devices in the world, you can't avoid the possibility that someone is going to crack the security measures (in this case, Microsofts). But it's very difficult on WP7, if not impossible still, as opposed to Android where it just takes a few clicks to get the content of a marketplace app, and then decompile it.