I think I read it somewhere, but couldn\'t find the source now and can\'t confirm it: when install(Major upgrade) a newer version from MSI, if the file has been modified (ei
As pointed out, your REP is early in the sequence, so it's essentially an uninstall of all the older product followed by an install of the new one. This is one type of major upgrade.
The other type of major upgrade is when REP is at the "end". In this case the new product is installed on top of the older product, and that will follow file replacement rules, that's the part that's relevant to your question.
This might be useful:
http://msdn.microsoft.com/en-us/library/aa370531(v=vs.85).aspx
and there's different rule if the unversioned files have hash checking. Yes, unversioned means "without a file version in the file's resources".