There appears to be a conflict between IISxpress and Microsoft's SharePoint Server 2007. The problem is easy to fix and appears to be related to the way that SharePoint is handling responses from the WebResource.axd file.
It appears that SharePoint compresses responses from this file even though IISxpress has already compressed the response. This only seems to occur when the AXD file responds with JavaScript content. Unfortunately the only way to solve the problem is to exclude this file from being compressed by IISxpress.
You can do this by adding an extension rule to exclude compressing all responses from AXD files, or alternately you can use the IISxpress command line utility to exclude only the WebResource.axd file. You can view an online tutorial on how to add an extension exclusion rule by clicking here.
In order to exclude the WebResource.axd file you need to locate the SharePoint web server root. This will probably look something like: C:\Inetpub\wwwroot\wss\VirtualDirectories\80. Open a console window, navigate to the IISxpress program directory, probably c:\Program Files\Ripcord Software\IISxpress and type:
> IISxpress add file C:\Inetpub\wwwroot\wss\VirtualDirectories\80\WebResource.axd
When you press return you should see:
Adding 'C:\Inetpub\wwwroot\wss\VirtualDirectories\80\WebResource.axd': OK
Now when you run up the SharePoint web site the WebResource.axd file will not be compressed.
If you need help for the add command just type: iisxpress help add.