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Check out this cool article on MSDE Deployment with your application installer package.

http://msdn.microsoft.com/library/default.asp?url=/library/en-us/dnmsde/html/msdedepl.asp

“Summary: Learn how to use the MSDE Deployment Toolkit (Release Candidate) to integrate MSDE deployment functionality into your application's installation package with minimal effort. Additionally, get some insight into building a reusable installer class to make this process even faster and easier. (24 printed pages)” - from msdn