as it looks like nobody solved it so far, I want to suggest this solution, even after 13 years:

  // e.g. or any other convenient stream
  strStr := TStringStream.create('');
  //..
  arcItem.Stream   := strStr;    // set your stream 
  arcItem.Selected := True;  
  archive.ExtractSelected(''); // extracts to your stream, DestinationDir seems to be ignored, even if provided
  strStr.Position  := 0;       // read stream from the beginning
  OutputDebugString( PChar( strStr.DataString ) );
  //..