I am using Visual Studio2008 for my development and i want to create a silent set up package i.e. i don't want any UI to come up during installation. Is it possible to create a silent installer MSI using Visual Studio and if not then are there any other tools to do the same?
The MSI runs silently with the appropriate command line options, I don't think there is any way around that. See here - you have to use the /q switch.
An alternative is NSIS.