How to handle the .msi file with Inno Setup?

Try this:

ShellExec('', 'msiexec.exe',
  ExpandConstant('/I "{tmp}\package\file.msi" /qb'),
  '', SW_SHOWNORMAL, ewWaitUntilTerminated, ErrorCode);

Or:

[Files]
Source: file.msi; DestDir: {tmp}; Flags: deleteafterinstall;

[Run]
Filename: "msiexec.exe"; Parameters: "/i ""{tmp}\file.msi"" /qb"; WorkingDir: {tmp};

Note that: I'm using Inno Setup 5.5.3 on Windows 7, and that this code is for the Inno Setup script in the run section. With this code you can run msi files without any problems. Here is the code:

[Run]
Filename: `{src}\PhysX.msi;` Description: Nvidia PhysX; Verb: open; Flags: shellexec postinstall waituntilterminated runascurrentuser skipifsilent