Some more info to the beginning of this thread:
"Building a compressed setup with MSDE mergemodules produces errors."
I'm still using ISWi 1.52, but never tried it's feature to build compressed setups because it seems to be based on a feature, not component base. So I wrote a VBScript doing the cab-job using MakeCab.exe and controlled with ASCII files containing the info which component should be put to which cab-file.
When trying to build a setup containing MSDE there was always a problem with SHARED.MSM. This mergemodule contains two components, each with one file. But these files are physically identical, its two times the same file; they are stored in the same source folder but copied to different locations during the installation. One of these two(/one) files is also duplicated to a third destination via duplicatefiles action (that's ok).
When building the cabbed version of a setup it seems like ISWi deletes the file from the source tree after having compressed the file for the first component. When building the second component, the file is missing.
MS obviously did something in this mergemodule where they better should have used a second duplicatefiles action instead of using the same source file twice (in two different components).
I changed my Script to delete the source files after having compressed all files destined to one cab-file. That way it's possible to build a working, compressed setup with MSDE. If anybody is interested in the Script, please contact me with the text 'CAB-Script' in the Subject of an EMail.