Ah, you need more than just the Setup.exe when making a GameDisk - you also need the .lzh file, setup.ini, and unlha32.dll.

Anyway, yes, the camera pans by blocks. And when you pan, it'll keep wherever you panned to as the center - so if you move it right by 5 blocks, the screen will always be 5 blocks off-center. The "Return to Origin" option fixes this.