Software Deployment

hi all,
i am currently reviewing standards for a client who we shall be packaging for shortly.
They want us to choose a isolation method.
They also want conflict resolution done against the build and all previous packages. As hot fixs are released they intend to update the build so the base build is constantly updated.
tool used will be Installshield.

As the build is xp i will be implementing .manifest as the best isolation method.
how will this effect the installshield conflict database though? will it notice that files are isolated and thus not throw any ACE errors?
if you use .manifest isolation will the registry keys throw conflicts also or will the db spot that they are isolated?
Any tips on setting up the conflict database?
is there anything else i should look out for?
all info very welcome and appreciated