Disk compression on XP works a hell of a lot better than it used to. The Win9x and older model involved putting all your files into one big compressed file and mounting that as a virtual disk...hence ending up with two drives. I have had several clients in the past who did this, then saw a big file taking all the space on their newly acquired second drive and being very clever thought they could delete it and recover that space......
In Win XP, compression follows the WINNT model, it is done at file level. Each file is compressed individually, and naturally the amount of compression varies. There is no set in stone rule as to how much space you will recover, it really does depend on the nature of the data that is being compressed. One thing that is guaranteed though is the increase in CPU overhead required to compress and decompress on the fly. No real increase in drive utilisation though.
With very large drives being so cheap these days, it is better to not risk compression where possible. But remember....drives do fail...and 1Tb is a lot of data....make sure you have a backup