Go into the “Diplomacy43_Source” folder, select all files and folders, use the right-click menu. Rename this folder as “Diplomacy43_Source” to keep from getting confused. You should be able to right-click it and choose “Extract Here” which will create a new folder named “Diplomacy_4.3” (note the period).
If you fail this step, you will spawn into the world in a flat grassy plain instead of a street scene. You need the content in this folder for things to work, then you will overlay the contents of the “Diplomacy_4.3.exe” file over it. Make a copy of the folder called “ Native” and name it “ Diplomacy43” (this is only a suggested name). Note that you always need to start from a clean version of the “Native” folder when installing modules, so having backup copies of this folder is important. Select all of the folders in the “ Modules” folder and right-click to use the “Compress” option to create a ZIP or 7Z backup file.