If the install is running under the local system account, then it won't be able to connect to the UNC path.
If the setup.iss file is in the same directory as the setup.exe, then just leave the path out, for example:
when you use software distribution avoid scripts or parameters that refers to network path.
If you need there files add them them to the Additional Files section so they are downloaded to the client an everything will be local.
When a Software Distribution task runs it normally runs under LocalSystem with none or limited access to network resources.
I m agree whith that. I use a lot of these install features, and the issue is always a path problems. The best way for me, is to create the iss file from a sample computer, and from the landesk deployment path, (C:\program files\Landesk\....) and test it on this computer. If it is working fine copy the binaries on the correct path on your packages server, and then create the packages. It will work fine too when deploying the packages. Be care of the numbers of space car in the command line.