First thing you'll probably need to do is get rid of that RemoveFolder in your CommonAppDataPathwaysFolderComponent component. Thats going to delete your directory and everything it contains (including settings. Xml).
Add the neveroverwrite back in and see what happens.
Windows installer only installs a component if the keypath is not yet present, or points to a file with a lower version. In the typical case of a single-file component, wix defaults to using that file as the keypath. In this case the keypath of the CommonAppDataPathwaysFolderComponent component is a registry key; it has been explicitly marked with the keypath=yes attribute.
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