As others have said, compressed filesystems exist - DOS, MacOS and
even the venerable AIX compressed JFS. From experience, they are
hideously slow when lseek(2) is involved on large files; no
surprises there. But they do have their uses.

Compressed block devices are another matter. I can't think of any
writable implementations, but there are read-only implementations
out there (like the HDI driver in MacOS X). Implementing a read-write
compressed block device would be challenging, given the completely
arbitrary nature of compression ratios.

Cheers,
--
Paul Ripke
Unix/OpenVMS/TSM/DBA
I love deadlines. I like the whooshing sound they make as they fly by.
-- Douglas Adams