This should work out of the box. To verify that my ASP.NET AJAX JSON responses use GZip compression:
Download Fiddler (version 2.1.9 is
the latest)
Enable Fiddler in IE 7: Tools -> Fiddler2
As all traffic is routed through the proxy, you need to set Fiddler to apply the accept-encoding:Gzip in the HTTP header. Rules -> Apply GZip Encoding
Visit your site through fiddler. If your site is on localhost, IE7 won't route this through fiddler. Fiddler 2.1.8 has a neat feature that maps localhost (127,0.0.1) to http://ipv4.fiddler and http://ipv6.fiddler
Find the asmx request in the Fiddler sessions.
To verify that the request was made with the gzip encoding, look at the Request-Headers in the top panel. You should see "Client: accept-encoding: gzip,deflate"
To verify that the response was sent with gzip encoding, look at the Response-Headers in the bottom panel. You should see "Transport: Content-Encoding: gzip"
I have IIS 7 installed on Vista Business SP1 with no additional configuration, my project is using ASP.NET AJAX with standard web-services.
Hope that helps!