First check if Dynamic compression is enabled:

 

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administration.config

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

 

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For IIS 7, also change the urlCompression tag:

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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.

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