I like using NSIS. It's an open source scripted installation tool. The nice thing is that a "silent" install ends up being a self extracting executable. The other nice thing is that it is both a scripting tool and a compression tool, so you have a lot of flexibility to do things, rather than just extract/launch like some tools have. It's also free.
I also recommend getting something like HM NIS Edit, or the Eclipse IDE plugin for NSIS, because they have wizards that will help create the basic shell of the tool.
- 7zip, ZipGenius, host of other freeware compression utilities
- MSI - Advanced Install Freeware 7.0. Provides simple MSI creation.
- Package Builder - YAK