3.03.7 beta has been released with the new capability (console only right now) to correctly compress SFX installers and other previously uncompressible files with extra-data appended at the end and referenced at a static physical offset. This is accomplished through API hooks. You have the option to either include the extra-data within the compressed PE image (so its processed through CODECs), or leave it outside the compressed PE image (so it isn't all loaded at once, and instead read from disk as needed). The new switch is /ExtraDataFix:[I/O] . Other switches are not necessary (e.g. /KeepOverlay), and may interfere as this switch will set those setting as needed to perform the operation.
Of course, this is accomplished via API hooks to redirect reads on the host file by the host file to the new location of the overlay.
The Loader SDK has been updated, extending the PEC_HOST_INFO structure by 3 DWORDs to provide 'emulated' overlay/extra-data information.