Everyone, as far as I\'m concerned the question is ansered in EDIT 2. Although it\'s only a partial solution to the IIS side of the problem, it\'s what I was looking for.
Just for someone else who may look in the future. We upgraded to Windows 2012 server and IIS 8. The old config compression mimetypes which worked for IIS 7 did not work for IIS 8.
So, I tried a couple of suggestions here, but nothing worked. I ended up just adding this to httpcompression dynamictypes: multipart/*
and then gzip compression was working again.
Hope this helps someone else.
I've been struggling with this too and couldn't get it to work with my .svc even though it was fine with .aspx files in the same app. It turns out that it only works with basicHttpBinding and not wsHttpBinding or a binary encoded customBinding. This is fine for me as the compression factor outwieghs the benefit of the binary encoder (which reduces message size by quite a lot but not the factor of 10 that the compression gives).