The celestia installer already uses Inno setup.
It use an old one version (version 2.0.19 used bye chris Laurel)
Unless 7zip is integrated into innosetup, the 2-10% size reduction is hardly worth the extra time of having to unzip the installer. Not to mention downloading an unzip program.
to me decompressing the .7z file is quick enough but i have a pentium 4(compressing spend more time )
In istool(you have to install it, also innosetup and 7-zip), if you go to File->preferences... you can choose the folder of 7-zip (it will use 7za.exe in fact) and the command line of 7za.exe (so you can choose i think the way you compress your file(7zip support 7z, ZIP, CAB, RAR, ARJ, GZIP, BZIP2, TAR, CPIO, RPM and DEB formats), so compression could be faster)
Finally if you want to use 7-zip compression, you have to go to
Project->setup Option->compiler.. and in compiler choose the right compression aka 7-zip.
The creation of the installation file is automatic in istool(you only have to click on "compile setup")
And after the creation of the setup file you only have to execute it and the installation is automatic too.
I used the nullsoft installer for my addon which can use bz2 compression.
The scripting language for NSIS is somewhat quirky but there are plenty of examples and there is a wizard program available. I liked it because the manual has jokes in it.
I have heard that nullsoft installer was a good one, but chris use actually
inno setup. I don't know anything of nullsoft installer so i hope, if you think it's better than inno setup you will try to convince him and the community of celestia