Yes, its a mini-DVD medium. But the beauty of its design is that the disc is encoded with a code at the beginning, to recognise it as a real GCN game. Also, it spins in the opposite direction, making piracy impossible to the average user.
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it should be able to play music cd's
How did you come to that conclusion? Just because I have a toaster, doesn't mean I want to put a steak in there, right?
As for your compression question, the FMVs (full motion videos - anything that is pre-rendered, like the movie clips in Rogue Squadron and clips in Resident Evil Remake) can be compressed down using codecs, like DivX. Factor 5 designed a DivX-like compression specifically for the GC.
You can't compress the source code of the game per se, but the amount of space that it consumes is small compared to the FMVs. FMVs are the reason Resident Evil is over two discs, the FMVs are realistic and uncompressed too!