Wix is one of the few Microsoft open source projects, it's hosted at SourceForge under CPL licesnce.

Wix allows to create setup files (.MSI, and .MSM) from Xml definition.

If you want to start with it here are useful links:

http://www.tramontana.co.hu/wix/index.html

http://wix.sourceforge.net/wiki/index.php?WixExamples