Simplifying to the highest, Windows Installer is ideal for deploying per Machine applications that impact machine state on install and ClickOnce is for per user applications that do not impact machine state on install. Windows Installer can do everything that ClickOnce is capable of plus lower level operations in a machine (such as driver installation, user customization, registries, custom actions etc) whereas ClickOnce installation process is managed and isolated to prevent potentially destablizing operations such as updating the registry settings and global assemblies. Applications built on Windows Installer Technology require Windows Installer Engine and ClickOnce Applications require .NET Framework 2.0 as minimum. Both of them have their vital representations and importance in the installation technology platform and therefore it depends on a particular application and case scenario for which technology to implement. ClickOnce is more useful for server-client applications where instant changes at the server can be implemented throughout the clients. Windows Installer represents typically a fully featured stand-alone applications as well as server-client applications where a timely fashioned updates are more preferable for installation manageability.

From the below sources, you can find the major differences between ClickOnce and Windows Installer Technology and decide which one suits your best needs. 

Item 1:  Choosing Between ClickOnce and Windows Installer
Michael Sanford takes an in-depth look at the .NET Framework 2.0 ClickOnce technology and compares it with the existing Windows Installer Technology. Michael concludes by making some recommendations on when to use each technology.

Read the indepth analysis from Michael Sanford.

Item 2: What's New In Software Installation For Windows Vista: Exploring The Windows Installer (MSI) And ClickOnce Options
Tyler Robinson & Jamie Cool, Program Managers at Microsoft, present a powerpoint slide show at Microsoft's Professional Developers Conference (PDC) 2005 for when is the best suitable scenario to use ClickOnce and Windows Installer.

Download the FUN222_Robinson.ppt slide by visiting PDC 2005 site or Click Here

Item 3: Introducing Client Application Deployment with "ClickOnce"
Duncan Mackenzie describes how "ClickOnce" will simplify client deployment and compares three different deployment models (Web, ClickOnce, and full client installs with MSIs).

Read the article

Item 4: Choosing a Deployment Strategy
Find out some of the major advantages of ClickOnce over Windows Installer (and viceversa) with this article.

Read the article