When using a very simple test project with the built in dialogs, the destination panel is not correctly validating the directory. If I simply enter a single letter, like "d" then it will proceed and set the install path to some weird value that includes the letter "d". I would think that it should throw an error before exiting the panel since "d" is not a valid path.
You may fix the problem by implementing additional directory input validation in all 3 event handler java source files for this dialog (swing, console, and silent). The existing code is pretty straight forward to modify: you do that by opening the Destination dialog from the Main frame of th User Interface (Dialogs) view in the InstallShield GUI.
If you don't mind, call the installshield support (if you have a support contract) or your sales rep (to request a one-incident support for free in order to report a bug) and tell them that fileService.validateFileName(destination) does not work properly in the Destination dialog event handlers in the following function: private boolean validateDestination(Wizard wizard, String destination)
