I Backup and compress large ISO files all the time, to save space.
heres an example of how much space you save, (Not to much)
Stronghold (verified) iso 653.672
Stronghold (verified) iso.zip 649.173
Stronghold (verified) iso.rar 649.040
Stronghold (verified) iso.7z 654.127
In order to use the ISO's I've always had to extract them first,