No options for compression from SQL. Doesnt matter what the tape device is - if it's on the HCL (or you can get it work anyway). Main thing is will the backup fit on one tape or not. You can test by backing up to disk first.
on the DDS3 tape drives the hardware compression is set by a jumper on the back of the tape drive it's self. I would clean that unit ALOT! every 4 hours on a new tape every 8 to 10 hours after that. DDS3 units are very bad about cloging heads and ruining tapes. If you could afford it I would go to a DDS4 or DLT unit for reliability.