Hallo Frank!
I also just bought an ov518 camera (Terratec TerraCam USB) and use the ov51x driver with JPEG compression.
(I think it has the compression, at least in the driver README stands: For OV518/OV518+ cameras: Compression support is built into ov511.o and enabled by default. )
For me it's working fine with pdp (have you tried it?), but I have problems with GEM (very much noise in the picture and I had to exchange the blue and red color channel - as I wrote some days ago).
Do you have the same problem?
@IOhannes: Maybe this compression is the problem with GEM (I haven't thought about that earlier) ?
LG Georg