>>The MSXML3 files get installed to INSTALLDIR, which I supose is not intended.
>>The folder's pre-existing text file is removed.
>>If I uninstall immediately, 2 of the MSXML3 files remian in INSTALLDIR
>> ...
>>I must conclude that this must be a bug in these merge modules.
>
>FYI: I've built installation files with these merge modules and have not seen the issues you describe. I am using Wise for Windows Installer version 6.0.

Oops! The merge modules for MSXML 3.0 service pack 5 are causing problems. For me, the MSXML3.DLL and the MSXML3R.DLL files get installed in the application directory.

I found the same DLLs online at http://www.microsoft.com/downloads/details.aspx?familyid=4a3ad088-a893-4f0b-a932-5e024e74519f&displaylang=en#filelist.

Apparently Microsoft has not released merge modules for MSXML3 SP 5 online.