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This is the answer I got from support:
//*******************
It looks like you're running into a path length limitation of the unzipping component used by the UNZIP Files action (DynaZIP). Testing here, unzipping to
c:\temp\unzip\a really long
works, but
c:\temp\unzip\a really long folder
results in 'Error creating output file.' Either use a destination folder 30 characters or shorter or check the 'Convert long filenames to 8.3 format' option.
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