^ this will work, but it's generally not a good idea. Will slow down the drive, and if you ever need to move the drive to another system, you may not be able to read it. Plus you are increasing chance of data corruption. Large drives are so cheap now you will be better off just getting a new drive for the data.
The effect of compression on performance has always been a moot point. It depends upon the power of your CPU and the transfer rate of your hard disk. If the CPU has the processing power, compression can improve performance as it has to read less data from the disk.
I'm not sure why it should make the disk difficult to read on another (XP) system or why it should increase the chance of data corruption.