I am not sure about getting a smaller file size unless you removed media and jpegs from the course?
Here are the instructions from the help file on what level to zip files.
About Publishing to an LMS
In order to prepare your content for hosting on a Learning Management System (LMS), you will need to compress (or zip) your course folder (for Windows XP users, your course folder is located at C:\Program Files\Microsoft\Learning\LCDSc\courses\<your course's name>\course; for Windows Vista users, your course folder is located at C:\ProgramData\Microsoft Learning\LCDSc\courses\<your course's name>\course). The resulting zipped folder represents a SCORM 1.2 Package. This means that your content is SCORM-compliant and can be hosted on a Learning Management System (LMS). When hosted on an LMS, your course content will not be associated with the viewer that displays in Preview mode; rather it will display in the viewer that is used by the hosting LMS. The following image shows the content areas that would be picked up by the hosting LMS. Note that the lower navigation (for topics) and My Notes area are included with the hosted content.
