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Compressed folders is a shell extension for Windows Explorer, which makes it possible to open compressed files like they were ordinary folders in Windows Explorer. Currently zip- and cab-archives are capable of being opened like a compressed folder.

• Windows 95 / NT4 - Can by default not open archives as compressed folders.
  • Install support for zip files as compressed folders
  • Install support for cab files as compressed folders
• Windows 98 / 2000 - Supports cab files by default, but not zip files.
  • Install support for zip files as compressed folders
• Windows Me / XP / 2003 - Supports cab and zip files by default.

Windows XP / 2003 extends the functionality of compressed folders by allowing the file search to open and look through zip and cab archives. This can slow down the file search significantly, so if already using a different utility to handle compressed files, then one can consider to disable the compressed folders functionality.

To disable the compressed folder functionality use these commands (reboot after executing the commands):

regsvr32 /u cabview.dll
regsvr32 /u zipfldr.dll

To enable the compressed folder functionality again use these commands:

regsvr32 cabview.dll
regsvr32 zipfldr.dll

More info MS KB Q197144
More info MS KB Q306531