Very useful information, thanks for sharing!
How would u distribute the level with custom textures included in the "TextureCache.zip"?
Will this conflict with the "TextureCache.zip" of the person downloading the level? (i.e. they have different custom levels with diff custom textures)
So after some messing around with it, I finally figured out all you have to do is create a TextureCache folder inside of your non zipped Media folder and place your dds files in there.
You use the same XML code as before and then you don't have to mess with the zipped folders at all.
So to package a level up just create your Media folder. Put your classes, levels, Meshes, Textures, and TextureCache folders and place all of your items as needed.