You should define sys_dir directory in lms.ini file pointing to your LMS installation dir, as Userpanel will need LMS libraries located under this directory to run. Additionally you should enter your Userpanel location in userpanel_dir variable.
Userpanel, besides options available to setup in LMS-UI, uses also those enclosed in [userpanel] section (also available in lms.ini file).
Userpanel modules are located in modules subdirectory. You can turn it on or off simply by copying module into, or deleting it from this directory, respectively.