This may have been mentioned before, but there is a problem with the C runtime merge modules that ship with InstallShield 3.5 SP4. The problem is mentioned at http://support.installshield.com/kb/view.asp?pcode=ALL&articleid=Q106405

Problem:
MFC 7.0 Merge Module files get installed to the root drive of the target machine

Workaround:
Right Click on the Merge Module in the Merge Module / Object view and select properties. In there use [SystemFolder] as the destination.

I just got bit by this problem, since I didn't know it was an issue. If this happens to you, you can get out of a pinch by simply moving the ms*.dll files from the root directory to the Windows System folder.

I haven't tested the InstallShield workaround yet, but I assume it will work. The destination folder needs to be set in all three C 7.0 merge modules.