If you want to distribute an MSM file, here is how to do it.
E.g. if you want to download and install Microsoft's SOAP Toolkit 3 redistributable, which is in MSM format, you can use this procedure. However, for more notes about SOAP, see my related post here.
These instructions are for Visual Studio 2008.
Go to File / New / Project and create a new Setup Project; see the first screen shot below.
Edit the project's Properties and set your Company name and product name.
Add a new Project, a Merge Module project.
Select the MSM files you want installed.
Build and run.
Check that your MSM files appear where they should, e.g. for Microsoft SOAP libaries, check that they appear in C:\Program Files\Common Files\MSSoap\Binaries.