Question: I'm looking at deploying some software via GPSI and the current version of the software is distributed as a .exe so I need to convert it to an MSI file.

furthermore, why does MS still distribute some of its software (WMI Tools) as .exe

Answer: 
The type of tool you're looking for is called an Application Repackaging tool. The process would include capturing an installation (take a machine snapshot, run your installation and make customisations, then run a second snapshot to calculate the differences) then compiling the captured data into MSI format.

The following are some free tools to perform these tasks, in order:

1. [AppDeploy Repackager](http://www.appdeploy.com/tools/repackager/): Use this to capture your installation and create an MSI from the captured data. If your app is reasonably simple then this may be all you need.
2. [Microsoft Orca](http://support.microsoft.com/kb/255905): Use this to edit the MSI that has been created with AppDeploy Repackager. You will need to know how MSI's work to really make the most of Orca. Microsoft's [Installer Database Reference](http://msdn.microsoft.com/en-us/library/aa369398(VS.85).aspx) is the definitive source for information on MSI contents.

As for your second question: You will find that sometimes vendors will supply an MSI wrapped in an executable, so if you run the .exe you might be able to dig out the MSI from a temp directory.
IMO WiX may be the best way, since repackager working with snapshots tend to record unrelated changes, as far as you don't spend some time setting exclusions...

Using the [Wixtool](http://sourceforge.net/projects/wixtool/) makes the creation of an MSI quite convenient instead of writing lots of xml containers ;)