Step by Step: download

Create New "Windows Phone Application".
Download "Silverlight SharpZipLib" from http://slsharpziplib.codeplex.com/releases/view/50561.
Unpack "Silverlight SharpZipLib" and copy Bin/Release/SharpZipLib.WindowsPhone7.dll
Create new folder "SharpZip" and past into copied SharpZipLib.WindowsPhone7.dll.
Right click on project and "Add Reference...".
Choose from "Browse" tab SharpZipLib.WindowsPhone7.dll from your project location.
Add to "MainPage.xaml.cs" (probably you need to remove "using System.Windows.Shapes" because conflict System.Windows.Shapes.Path vs System.IO.Path):
```
using System.IO;
using System.IO.IsolatedStorage;
using ICSharpCode.SharpZipLib.Zip;
using ICSharpCode.SharpZipLib.Zip.Compression.Streams;
```

Add code for download file from web:

public MainPage()
{
    InitializeComponent();

    Loaded += new RoutedEventHandler(MainPage_Loaded);
}

void MainPage_Loaded(object sender, RoutedEventArgs e)
{
    System.Uri targetUri = new System.Uri("http://MyDomain/Archive.zip");
    HttpWebRequest request = (HttpWebRequest)HttpWebRequest.Create(targetUri);
    //create asynchronous tast and declare callback to get data stream
    request.BeginGetResponse(new AsyncCallback(ReadWebRequestCallback), request);
}

And add function "ReadWebRequestCallback" to unzip & save file we got:

private void ReadWebRequestCallback(IAsyncResult callbackResult)
{
    HttpWebRequest myRequest = (HttpWebRequest)callbackResult.AsyncState;
    HttpWebResponse myResponse = (HttpWebResponse)myRequest.EndGetResponse(callbackResult);
    using (StreamReader httpwebStreamReader = new StreamReader(myResponse.GetResponseStream()))
    {
        //open isolated storage to save files
        using (IsolatedStorageFile isoStore = IsolatedStorageFile.GetUserStoreForApplication())
        {
            using (ZipInputStream s = new ZipInputStream(httpwebStreamReader.BaseStream))
            {
                //s.Password = "123456";//if archive is encrypted
                ZipEntry theEntry;
                try
                {
                    while ((theEntry = s.GetNextEntry()) != null)
                    {
                        string directoryName = Path.GetDirectoryName(theEntry.Name);
                        string fileName = Path.GetFileName(theEntry.Name);

                        // create directory
                        if (directoryName.Length > 0)
                        {
                            Directory.CreateDirectory(directoryName);
                        }

                        if (fileName != String.Empty)
                        {
                            //save file to isolated storage
                            using (BinaryWriter streamWriter = 
                                    new BinaryWriter(new IsolatedStorageFileStream(theEntry.Name,
                                        FileMode.OpenOrCreate, FileAccess.Write, FileShare.Write, isoStore)))
                            {

                                int size = 2048;
                                byte[] data = new byte[2048];
                                while (true)
                                {
                                    size = s.Read(data, 0, data.Length);
                                    if (size > 0)
                                    {
                                        streamWriter.Write(data, 0, size);
                                    }
                                    else
                                    {
                                        break;
                                    }
                                }
                            }

                        }
                    }
                }
                catch (ZipException ze)
                {
                    Debug.WriteLine(ze.Message);
                }
            }
        }

    }
}

Run your application and enjoy.

WP7 - Download zip file, unzip and save to isolated storage