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The usage of is when looks fine to me. Sentences using is when are definitions of events.
When is the old english letter Æ/æ modernised to A, E and AE?
The first one is correct. The second is wrong. The reason is that you cannot use the Simple Future tense in Time Clauses, so those ones that start with when, while, before, after, by the time, as soon as, etc. In your case, the Present tense is adopted; so, the correct sentence is: The software will be installed when the computer is ready.