Thanks!

Have you tested the new app version?

Sadly I am not able to test it right now - and not sure how to test it to avoid triggering rewrite rule, maybe change also user agent?
Is that rewrite rule applied also to dev server?

No, I've not tested it.

The dev server does not have the workarounds applied.

No need to test, this will work. Thank you @Firefishy !

I wonder if this should be reported upstream (and that issue report be mentioned in a comment at that point in the code). I have to admit that I don't quite understand the cause of the issue yet. Just scanned the wikipedia article, which just has this to say:

deflate – compression based on the deflate algorithm (described in RFC 1951), a combination of the LZ77 algorithm and Huffman coding, wrapped inside the zlib data format (RFC 1950);

So, deflate doesn't work at all, or deflate doesn't work under certain circumstances?
There's a sample application for using content encoding with ktor here, which uses deflate. I seems kind of hard to believe that a general bug in deflate would have slipped under their radar.
When reporting an issue, ktor-people would probably want a reproduction, e.g. an API endpoint that offers this version of deflate that is incompatible with whatever implementation they have. Any OSM API call will do?

(By the way, digged a bit into their code. On JVM, I end up here.

https://github.com/ktorio/ktor/blob/c68f4ee0d5c37ed516498d705562528ee4c33be5/ktor-utils/jvm/src/io/ktor/util/EncodersJvm.kt#L51-L60

Didn't dig deeper.)

Turns out there is already an issue report. I added my reproduction. https://youtrack.jetbrains.com/issue/KTOR-6999/Deflate-ContentEncoder-incorrectly-uses-raw-DEFLATE