Here is a quote from an MS article. It is written for
Office 2003 products.
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Local Install Source (Msocache)
SUMMARY
Local Install Source is a Setup feature that copies the install source files from the Microsoft Office 2003 installation media (for example, the Office 2003 CD-ROM) to the Msocache folder. This is a hidden folder on your local hard disk.
MORE INFORMATION
The install source files will be copied from the installation media to the Msocache folder on your local hard disk if the following conditions are true:
One of the available hard drives has more than 1.5 gigabytes (GB) of free disk space available.
The hard disk with sufficient space is not a removable drive or a network drive.
The Local Install Source feature is installed so that you do not have to insert the CD during the following Setup operations:
Detect and Repair
Demand Install
Maintenance Mode Setup
Installation of service packs and patchesIf you want to remove the Msocache folder, you can do this during Office Setup, or after Office has been installed. Removing these files will save approximately 270 megabytes (MB) of hard disk space. After you remove the Msocache folder, you may have to provide the installation media to complete the Setup operations that are listed earlier.
Warning Never delete the MSOCACHE folder by using Microsoft Windows Explorer.
To do this, follow these steps:
Click Start, point to All Programs, point to Accessories, point to System Tools, and then click Disk Cleanup.
In the Select Drive dialog box, in the Drives list, click C:, and then click OK.
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http://support.microsoft.com/default.aspx?scid=kb;en-us;830168