When setup is removed from windows installer cache?
Solution 1:
See:
ResolveSource Requires Source
The cache found in C:\windows\installer is not meant to be a full cache. It's a minimal MSI that's been stripped of it's embedded cabs ( if it was a compressed build ).
There is a second mechanism for caching in that if the cached MSI is not found or the cached MSI doesn't have the storage (Cabs) then it'll use a source list resolution process. Typically this is the location the MSI was installed from. Or a location the MSI was extracted to (cached) by a setup.exe. Also if you have tools like Microsoft Systems Center Configuration Manager it has a mechanism of caching the packages and calling MSI API's to inform the service of the locations.
You always want the MSI cached in c:\windows\installer and there is no mechanism to enable or disable this.