Short story: PackageMaker.app and Installer.app are plain dumb. Installer.app does not check if the permissions of the target directory are higher or lower than current user's permissions. It just asks for the Password and checks then if it's correct etc. etc.

Long story: Read Apple's PackageMaker Documentation to get an idea how it works.

The only option would be to create an Installer which needs no authorization (PackageMaker offers three options: No Authorization Required, Admin Authorization Required or Root Authroization Required) but that has some disadvantages (/Applications is not writable for non-admins and thus they cannot install LimeWire at all).

Note: all .pkg based installers have the same problem (including Apple).