You could probably use a Linux LiveCD - I think the NTFS-3G driver that most major distributions now use to access Windows hard drives supports compressing and decompressing files. I don't know whether you'd be able to do it via the file manager, though - you're more likely to have to use a command-line utility to do something like that.
Once you get your system booting again, you'll find that performance really sucks on a compressed drive. I'd suggest getting a USB hard drive and shifting all the big stuff like photos, music and video files off onto that - they don't compress at all well anyway as the data in them is already compressed. Then you can decompress your drive and defrag it using MyDefrag (www.mydefrag.com) which is about a million times more effective than the built-in defragger in Windows (it'll need defragging quite seriously after being compressed).
Agree ^, using drive compression was a unpopular solution years ago when drives were small, and an even poorer solution today with so many big inexpensive storage options available. You won't like your PC once you start using it with the compressed drive. It must continuously un-compress and re-compress every thing you do as it moves data from your hard drive to RAM, and vice versa. Disk defrag will want to run almost constantly.
this problem is faced when the windows isn't able to boot itself but its files are still present . one way is to rip your computer apart , take out the hard drive , connect it to another pc or laptop and uncompress the window partition . if that seems risky u can also load ur windows (7 only) by making a bootable cd . u must compress windows files (http://thepiratebay.se/torrent/5952557/Windows_7_Ultima...) into iso file using imgburn (tutorial@ http://www.youtube.com/watch?v=TsONfL-js_I ) . then all you have to do is take an external storage device having atleast 4 gb space and load the iso file onto it using windows dvd usb download tool (http://www.microsoftstore.com/store/msus/html/pbPage.He...) once its ready change the bios settings of ur computer which isn't working so that the computer uses the device to read the files (u will have to do this urself as every computer has a different bios ) . i have done this using many people's help so if u feel that i have stolen ur idea "a 10000 apologies".