GZIP file format specification version 4.3
Can GZip compression (via .net) increase file size?
Yes. It can. It has been fixed in .net 4.
The compression algorithms for the System.IO.Compression..::.DeflateStream and System.IO.Compression..::.GZipStream classes have improved so that data that is already compressed is no longer inflated. This results in much better compression ratios. Also, the 4-gigabyte size restriction for compressing streams has been removed.