Well ask yourself this question.  Would it be quicker to copy 100MB or 1000MB?  With compression, the file-copy process is much quicker then decompressed.  The decompression process after the file-copy takes less time than copying the decompressed files.
Although, to be honest, I haven't taken any timings to confirm that.  So take my ramblings with a grain of salt.

It certainly depends on your HW, but I'm with Erik on this one.

It's just like using UPX to compress your EXE files.
It takes a little more CPu time and RAM to extract them during runtime but you gain from the compression because the file is read much faster from the HDD.

Unless you were using a very fast DVD drive with a fast controller but a very slow CPU and slow or little RAM (192 MB is AT THE VERY LEAST recommended, I urge you not to install on less than 256 MB to make sure the extraction does not need to swap to the HDD, which will be extra slow, I guess, because it cannot yet use DMA), the method currently should actually be faster.

You could try for yourself (though it's not totally scientific):
Copy the DVD with extracted files (just extract all DriverPacks and burn them on an RW medium) to the HDD and compare that to the time it took to extract all DriverPacks onto the HDD (preferably again using an RW as the source of the archives).

Of course, this time, there will be DMA support and also better page file caching support, but still...