Thanks to Arnaud Launay for this bandwidth saver. The following should go in /etc/ftpconversions to do on-the-fly compressions and decompressions with bzip2. Make sure that the paths (like /bin/compress) are right.
:.Z: : :/bin/compress -d -c %s:T_REG|T_ASCII:O_UNCOMPRESS:UNCOMPRESS : : :.Z:/bin/compress -c %s:T_REG:O_COMPRESS:COMPRESS :.gz: : :/bin/gzip -cd %s:T_REG|T_ASCII:O_UNCOMPRESS:GUNZIP : : :.gz:/bin/gzip -9 -c %s:T_REG:O_COMPRESS:GZIP :.bz2: : :/bin/bzip2 -cd %s:T_REG|T_ASCII:O_UNCOMPRESS:BUNZIP2 : : :.bz2:/bin/bzip2 -9 -c %s:T_REG:O_COMPRESS:BZIP2 : : :.tar:/bin/tar -c -f - %s:T_REG|T_DIR:O_TAR:TAR : : :.tar.Z:/bin/tar -c -Z -f - %s:T_REG|T_DIR:O_COMPRESS|O_TAR:TAR+COMPRESS : : :.tar.gz:/bin/tar -c -z -f - %s:T_REG|T_DIR:O_COMPRESS|O_TAR:TAR+GZIP : : :.tar.bz2:/bin/tar -c -y -f - %s:T_REG|T_DIR:O_COMPRESS|O_TAR:TAR+BZIP2