Prostetnic,
Thank you for your question about the InstallMonitor method. The snapshot method, which you're familiar with, basically works by taking a before and after picture of your OS, then comparing the two, and making the difference part of your package. By comparison, InstallMonitoring watches the installation, and any "new" files are put into the package.
I'm not entirely sure what is going on during your repackaging attempt, but what _should_ happen is that the InstallMonitor should be running your setup program, then after doing some calculations, it should put you back into Repackager with a ready to build project. Upon (successfully) building the project in the Repackager IDE you should get your MSI.
If that's not happening, then please post some more details about what is happening and we'll go from there. Hope this helps.