As I was writing my initial question I saw this post.
I deployed my site and enabled static content compression. But still received the following response.
1st Run
2nd Run
I can obviously see that the response size has decreased. This might be a stupid question, but its just to satisfy my own curiosity. If the content is compressed why would it show up as uncompressed in fiddler?
EDIT: ..and can the content be gzipped on the first request as well?
UPDATE: I solved my issue by using deflate instead of gzip... go figgure :/ (and by comparing, apples with apples, and not 401 errors.) Thanks for all the comments though. Also i found the answer to the 401 errors i was receiving : Link