Yes, there is nothing special about the
Installer directory that requires them to be uncompressed.
In the old days, there were piles of installer files like
uninstall.exe, etc. in the
\Windows\ directory; sometimes shared, sometimes not. The
\Windows\Installer folder is the Windows Installer cache, which allows each program to maintain its own installation program, similar to how the WinSxS folder helps to avoid DLL Hell.
In general, it is used to store/cache the basic installer for programs, so that when you want to modify an installed program, it runs from there and allows you to uninstall or possibly even do a repair without needing the original installation media, and so there should be no adverse affects from setting it to use NTFS compression.
I’ll leave the answer to whether you can compress/archive them as ZIP, RAR, etc. for others who find their way here, looking for that.
Some programs choose to store their entire installer which of course is undesirable, but fortunately those are rare; most just store a smaller installer file (like
unwise32.exe in the old days) with the basic installation information. Most programs don’t use the files in the
Installer folder at all and they only come into play when you make a change with Add/Remove Programs.
Occasionally however, you may find a program that actively uses some of the files, particularly by setting the icon of their shortcuts (in the Start menu, desktop, etc.) to point to the
ARPPRODUCTICON.exe file in its Installer cache.
In most cases, you can compress or move the files and put them back when you want to make a change (modify, repair, uninstall). In fact, the folder is ultimately a cache of installation files, so you could even delete them and just use the original installation media.
NB: it is not only programs that cache their installation files in the
Installer folder; Windows itself keeps patches and service-pack data in there as well, so if you delete them, updates may not work, and theoretically, you might have to re-install Windows. Don’t just move/delete the entire contents willy-nilly; take a look at what is in there.