At least this is what I have seen for Morrowind mods. A former 140 MBytes zipped mod has been reduced to about 70-80 MBytes by 7-zip.
The best decompression tool that I could think of is, for all formats: http://www.zipgenius.it/
Even if you want to stick with ZIP files, you definitely want to get a professional archiving program (7-zip, Izarc, WinRAR, etc.). Pretty much everything makes far smaller ZIP archives than the XP utility and WinZip. Those are great examples of really poor software.