First check if Dynamic compression is enabled:

administration.config

Open C:\Windows\System32\inetsrv\config\administration.config with notepad and change the httpCompression tag:

For IIS 7, also change the urlCompression tag:

ISA Server

If the dynamic compression is still not working, verify there is no ISA server between the server and the client, if so follow the steps on http://forums.iis.net/t/1168067.aspx

To check if the ISA server is the problem just open a browser on the server en connect to the localhost url, check with fiddler if the dynamic compression works.