I use IZArc, not WinZip, but I think the behaviour is similar. Zipped files appear with the IZArc icon among the other files in Windows Explorer in XP and Win7 (and Vista, presumably), but they also appear with the other sub-folders at the next level. If there are many ZIP files, it rather distorts the folder tree. As I said before, I know how to correct this in XP, but not in Win7.