In XP and Win7, compressed (eg ZIP) files are displayed as folders in Windows Explorer, if you use a 3rd party compression utility (WinZip, IZArc,etc). In XP you can disable this feature by running the following in the Run window: "regsvr32 /u zipfldr.dll".
I use WinRAR for all of my unzipping needs. I associated it with all possible file extensions and it shows zip files as being rar files instead of folders. Doesn't WinZip do the same thing? It's been a long time since I've used it. It seems like if you associate it to zip files it should show them as such. Or is this a W7 glitch?
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.