Hi,

guessing in the wild:
* 10M surely isn't an optimal block size for running gzip; try feeding smaller blocks (try 1M or even smaller)
* gzip -9 compresses good but is slow; try running without parameter
* you should also adjust the block size of the output command - your HD surely doesn't use blocks of 10M

On the mknod command: from the error message it doesn't seem to be produced from any mknod program
I know of - what does type mknod say?

On your third remark: you are trying to back up a whole partition including all unused (and ever used) blocks;
you can't expect dd to distinguish between used and unused blocks. And there's also no guarantee that
the unused block contain no data (and thus are compressable to next to nothing). My advice would be to use
a "real" backup program - for the start even "tar" might be appropriate.

Last remark: your output data extension is ".zip"; not that it's important, but more appropriate would be ".gz" -
don't expect any ZIP program to be able to open your backup data file.

Ciao,
Thomas