I'm running Fedora 3 (guest) on Windows XP (host) using VMWare 5.
I installed the tar.gz file within a terminal under X. Surprisingly, it installed properly (note: it wouldn't allow me to do this in VMWare 4.5.2).
I then "ejected" the virtual CDROM containing VMWare Tools and turned OFF the VM install in the upper menu. Rebooted.
Sure enough, when Fedora 3 rebooted, the VMWare Tools kicked in.
Also, my networking wouldn't work under Bridged, but works fine under NAT. Configure NAT before starting up the guest OS.