What is the ArcGIS Desktop setup?
The ArcGIS Desktop setup was created using Microsoft Windows Installer technology. This technology uses a package file (.msi) and a client-side installer service (Msiexec.exe). The Windows Installer is a service that runs on your operating system. This service enables the operating system to manage the installation and uses the information contained within the package file to install the software.
The Msiexec.exe program is a component of Windows Installer. Msiexec.exe uses a dynamic link library, Msi.dll, to read the package files (.msi), apply transforms (.mst), and incorporate command line options.
Windows Installer 3.1 (at minimum) is required for the ArcGIS Desktop setup and will be installed by setup.exe if it is not present on the target machine. If you are installing by using setup.msi directly, you must already have Windows Installer 3.1 on the target machine.
Windows Installer technology
More information on Windows Installer can be found in the Windows Installer Software Development Kit (SDK) at http://msdn.microsoft.com/en-us/library/cc185688(VS.85).aspx.
The Setup.msi installer package can be used to deploy ArcGIS Desktop in Windows Installer supported environments such as Active Directory and Microsoft System Management Server. See Installing ArcGIS Desktop silently for information on command line options for installing ArcGIS Desktop. A deployment white paper is available on the ESRI Support Center. A link to white papers can be found on the Knowledge Base page.