The ZIP file is actually BIGGER than the setup program. How weird is that?

That just indicates that the installer is already compressed... Compressing a compressed file results in a bigger file because there is at least some overhead when compressing a file. Normally you wouldn't see it because what you are compressing got so much smaller, but since it is already compressed...

Which is why you should not zip/rar an already compressed file, yet many people who don't know better do and end up released a file that has been "compressed" into being bigger then the original file

Often zipping/rarring a file is more to do with some AV and security software being overzealous about .exe downloads rather than about compressionl. Also difference in size should not be that meaningful even with big files. I'm not sure if it's still issue with todays av's and internet security suites but half decate ago downloading few hundred megabyte exe could lock a computer while av was verifying the file, heck it could do it when you just opened a folder with big exe present.

It'salso issue with some webmail's and not limited to just exe files (at our workplace all attachments are autocompressed into one zip by the webmail we use and it sometimes screws the files up. Happended again just last week and I had to carry usb stick to people needing the file. Fortunately it was for people in the office but still annoying.).

In such a case you could password protect the archive, or use "store" level compression on the external archive.
You could also embed a zip in a zip but AFAIK a lot of such scan 3 levels deep so that actually wouldn't work well.

Also, my personal experience is that when someone zips a rar there is rarely an EXE file inside the internal archive.