I have the same trouble.
This problem only manifests on a CD, not on the network images we used in development.
I have an msi that is upgrading a previous one. I used InstallShield 1.52 to generate both packages. I use the command line "REINSTALLMODE=vamus REINSTALL=All" for the upgrade and a custom action that resets those values for brand new clients. On machines that have the first package installed, trying to install the second package, I get this prompt.
A log of the install (using /L*v) shows that at the point of prompt, the machine is verifying the accessibility of a file we want to place in System32. It is looking for the MSI package on the root of the CD, but the MSI is in a subfolder of the CD
On another CD I placed a copy of the MSI on the root of the CD, even though I didn't think I needed it there, as the MSI we invoke is still on a subfolder of the CD. Same dialog, but the log reports trouble when verifying accessibility to some other file.
Now, a confusing bit :) It works on my machine! The original CD displays the fault on the machine I use to develop the MSI, a Win2kPro. The new CD, with the copy of the MSI installs the products with no complaints on my machine. I take it to another Win2kPro or an NT 4 SP6 and the fault reappears.
And, after reading this, when I got the prompt I ejected and reinserted the CD, but the dialog did not go away.