First off, that Whatsmyip test doesn't seem to always work. Its showing some of my sites as not gzipped when they should be and using this
checker and the firefox webdeveloper bar show that it is serving gzipped content correctly.
Personally I think mod_gzip is a better solution than output buffering in PHP as it should run faster and can also compress static html pages if you wish.
For downsides, it can slow down your site, particually if you're files are quite small already and/or users you fast connections. As it takes time after the page has been generated to compress it at the server and to decompress it at the client, it is possible for it to be faster to send it uncompressed.
E.g. Googles home page is 4Kb uncompressed, 1kb compressed, so on a 2Mb/s link, if the commpression and uncompression takes longer than a 100th of a second it will faster to send the uncompressed version. Obviously, in this case both versions will load quickly so Google are probably doing it to save bandwidth.
Also the CPU load to compress data can be quite a hit which can further slow down a site which is why quite a few hsared host won't run mod_gzip - I don't know if they also restrict the php functions that do a similar job.