What is the compression method used by MSI files?

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First of all: there is a script in the Windows Installer SDK called WiMakCab.vbs which is used to create *.cab files for use in MSI files. One of the lines in that script is: Dim compressType : compressType = "MSZIP"). You should probably try that script when creating the cabs.

Below is an annotated quote from http://www.gdgsoft.com/ (16.06.2014: removed direct broken link, leaving the base url):

“Microsoft Cabinet supports three lossless compression techniques: (1) storing , (2) MSZip, and (3) LZX. Within a cabinet archive file, any combination of these techniques may be used. MSZip is essentially the same as the deflation compression method used by PKZip. LZX is an LZ77-based compression technique that uses static Huffman encoding. LZX uses more memory, but can produce better compression ratios than MSZip. Stored, of course, means the file is stored into the cabinet uncompressed.”

MSDN info: Microsoft Cabinet SDK and
Microsoft Cabinet Format.

Some Links:

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