OpenSSH 4.2のリリースノートにこう書いてある。
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- Added a new compression method that delays the start of zlib
compression until the user has been authenticated successfully.
The new method ("Compression delayed") is on by default in the
server. This eliminates the risk of any zlib vulnerability
leading to a compromise of the server from unauthenticated users.

NB. Older OpenSSH (<3.5) versions have a bug that will cause them
to refuse to connect to any server that does not offer compression
when the client has compression requested. Since the new "delayed"
server mode isn't supported by these older clients, they will
refuse to connect to a new server unless compression is disabled
(on the client end) or the original compression method is enabled
on the server ("Compression yes" in sshd_config)
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クライアント側がOpenSSHの3.5より前のバージョンじゃないか?