I've created setups for all my Delphi tools with Inno Setup for years. Now some users rather want an MSI installation package, so they can deploy the setups from a central server to all workstations.
How do I create one? Do I have to buy Visual Studio or some other product?
You can use Visual Studio - that's paid.
You can use http://www.advancedinstaller.com/ - that has a free edition.
You can use http://nsis.sourceforge.net/Main_Page - for example Winamp uses this installer - and is very configurable and is OS.
Google "Freeware MSI installer".
e.g. http://www.advancedinstaller.com/
Several options here:
http://rbytes.net/software/development_c/install-and-setup_s/
Though being Windows, most are "shareware" rather than truly free and open source.
You can purchase InstallShield, the market leader for creating installation packages. It offers many features beyond what you get with freeware solutions.
Warning: InstallShield is insanely expensive!
If you don't understand Windows Installer then I highly recommend The Definitive Guide to Windows Installer. You can't really use WiX without understanding MSI. Also worth downloading is the Windows Installer 4.5 SDK.
If you don't want to learn the Windows Installer fundamentals, then you'll need some wizard type package to hide all the nitty gritty details and hold your hand. There are plenty of options, some more expensive than others.
However still I'd suggest picking up the above book and taking some time to understand what's going on "under the hood", it'll really help you figure out what's going wrong when customers start complaining that something is broken with the setup :)