1: download the pfsense compressed image from a mirror e.g http://mirror.qubenet.net/mirror/pfsense/downloads/pfSense-1.2.3-RELEASE-LiveCD-Installer.iso.gz
2. extract pfSense-1.2.3-RELEASE-LiveCD-Installer.iso.gz image using peazip or winzip, you should be left with an extracted pfSense-1.2.3-RELEASE-LiveCD-Installer.iso file, dont try to extract this file any further, I think this is where youre going wrong.
3. burn using imgburn http://www.imgburn.com/index.php?act=download or your favourite cd burning program, dont use the windows in-built program, it cant burn ISO images let alone make a bootable CD.
if you use imgburn, choose the option "Write image file to disk".
Slam