EVERYTHING is compressed. Every game packet is stuffed inside the 0xfe wrapper, and now the 0xfe wrapper is compressed. This means that, once again, LoginPacket is double-compressed, which means that servers cannot identify the client's protocol version, can't disconnect them correctly for outdated server/outdated client, compression becomes non-optional, etc...
This information was obtained using MCPE 1.1 beta 1 and a custom server.
This issue is still present in MCPE 1.1.0.1 beta.