You'd have to look at your MSI in ORCA to see where the bloat is coming from. You might be able to simplify the graphics used for the dialogs or you might find some C++ infrastructure custom actions inserted by InstallShield that you don't need. (Right click show all custom actions)
I just created a Basic MSI using IS2012 taking all the default settings (including MSZIP) and it was 613KB. I then added a arbitrary OCX from the syswow64 folder ( selected based on size: ahtmlle2.ocx 218kb), extracted the COM data and rebuilt. The MSI was 845KB using MSZIP and 809KB using LZX.
I then looked at the Binary table and saw SetAllUsers.dll and ISSELFREG.dll. I don't need either of those so I took them out. That got me down to 438KB.
Finally I looked at the stock bitmaps used in the dialogs. ( NewBinary1 and NewBinary5 in my case. ) Banner (NB1) was 4KB. Dialog (NB5) was 16KB. Not really bloated. Still I turned them into blank white JPG's and rebuilt. That got me to 424KB. There are probably some other things to chase ( icons for dialogs ) but now I decided to try WiX.
I created a WiX MSI using the same JPGs and the size was 392KB. Smaller, but not in any meaningful way. I used this just as a cross check that my IS MSI was reasonably pure.