There are a lot of tutorials that show on how to merge multiple files (not including folders). It will be nice if I could merge a directory and it's files so that when the user clicks on the exe or msi file windows extracts those files to the destination that I select (just as if I where to copy the directory that I want to merge).
I want to create something similar as when creating a Setup Project in Visual studio.
If I where to build this project, and execute the file that was created (setup1.exe) I will lauch an install wizard and the same directory that I draged to my project will be "uziped".
You can use the WIX toolset to achieve what you want. WIX allows you to create MSI which do pretty much anything you would like. Unpacking files to an explict (or variable) folder location is a fairly simple operation in WIX.
It's like a visual studio setup project except you've got much more control. http://sourceforge.net/projects/wix/