The option to "compress" the hard drive should be your last resort. When the drive is compressed drive access will be noticably slower than a non compressed drive, as reads have to uncompress the data and writes have to compress the data. Also, a compressed drive is more prone to corruption. When a compressed drive becomes corrupt you lose all of the data. With an uncompressed drive you generally just lose a few files.
Considering how inexpensive hard drives are (200gig just under $100 USD, or under $80 USD after rebates) nowadays you are much better off buying a larger hard drive.