Yes. Just not the root.
It's a bad idea to compress the windows and program files folders though - it will really slow down your machine.
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Agree with above. If you'll notice, the folders that Microsoft creates as security update uninstall folders (hidden) in the Windows folder are compressed as part of the patching process. So, with full disk encryption, you can compress files/folders. Just don't have the drive itself (like mentioned above - the root) compressed before you try to encrypt the drive. It will fail to start encrypting until it's uncompressed (the root that is).