XP treats zips as directories so you can view the contents inside, and if you right-click on the zip file you should be able to extract. I don't know about vista.
Winrar is the best i've come across. Totally free, and unzips every kind of archive with great efficiency and speed. http://www.rarlab.com/download.htm
WinRAR is not free. I use 7-zip which is. It can pack and unpack 7z, ZIP, GZIP, BZIP2 and TAR files and unpack RAR, CAB, ISO, ARJ, LZH, CHM, Z, CPIO, RPM, DEB and NSIS files.
Has anyone tried KGB archiver? It has psycho compression!!!
But if its compression you want and not just a passworded archive, [broken link removed] does the job and its free. Although it takes ages, it has excellent compression.
Make sure it's the windows version (at the top) the other is for ms-dos although it works in windows.