Should any K2 module be installed on the client machine?What K2 Dlls should be on the client machine?

You do not need to install any K2 components on the machines of users who will be starting and participating in workflows.  You will need to install K2 components for the following types of users:

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• Developers creating processes with Visual Studio
  
• Users creating processes with Visio
  
• Users creating processes with K2 Studio
  
• Users who will be using custom software you have written which requires any of the K2 assemblies

Note, even with the last option if you have created some custom application which requires K2 components, you should give consideration to leaving all K2 components on a server where they are already installed and accessing them using web services or WCF.