major upgrade - all files get deleted

Did you "create" the new version fromout the old one or just created the new version from scratch?

have a read of this.

http://johnmcfadyen.spaces.live.com/blog/cns!9DD01136FC094724!249.entry

you need to run upgrade sync across the new version (preferably just modding the previous version is the go as Kim was eluding to.

Check that this is sequenced between InstallValidate and InstallInitialize, instead of at the end of the Execute sequence, which is the default.
If you look up "RemoveExistingProducts" in the help file MSI.CHM, all will be explained.
Apologies if John's blog has this information already - I can't access the link from my client site as they block social networking sites.

I just did 2 seperate captures, so the GID's of the components are all different, and I think they have to be the same.  I don't have upgradesync, so I guess I'll stick with moving the removeexistingproducts action sooner in the installexecutesequence table.  I actually have Phil Wilson's Windows Installer book, but he doesn't mention that (oh, I found component rules under Minor Upgrades).

What version of Wise are you using. Upgradesync is an integral part of windows installer tools from Wise.

I just have the Wise MSI Editor build 6 that comes with Altiris Deployment 6.9.

We assumed you were using the full version of the Wise tools.

 For all upgrades, one must be aware where the Remove Existing Products Action is placed in InstallExecuteSequence table.
If the GUID's of your new package are same with those of the previous version package then you can place the REP after install finalize. This will save the time of uninstalling the package and then installing the new one. Rather it will only update the new files.
However, if the component GUIDs are different then either you should sync them manually or using upgrade sync or you can place REP before install initialize. 
Hope this helps.