[aww]

I finally got it working. But the problem was not what we thought.

One thing you never mentioned is that "Auto Update Static" must be turned on.

That was the entire problem.

But that is very confusing in the settings. Is it really required to be enabled?

The first "Enable Compression" option is followed by "Enable Dynamic Compression". That implies the first option is for static files. Any further options are therefore, optional.

Is it not possible to have static files compressed on the fly without storing .gz verisons first?
It should be. More overhead yes, but might be necessary in some environments.

I assume litespeed checks the original file for changes and re-creates the .gz if there is a timestamp difference?