iOS does pretty well with handling various file types, but when it comes to compressed files, you run into problems. Fortunately, with the aid of a file browsing app you'll be able to view compressed files easily.
Lifehacker reader willeemammoth points out that you can get your iOS device to download ZIP and RAR files with the aid of a file browsing app like USB Disk.
USB disk is designed to browse files you transfer to your iOS device via iTunes, but because iOS 3.2 and up have the "Open in..." feature, you're able open email attachments and downloads if it is a supported file type. While USB Disk doesn't support every type of file, it does support two of the most common compressed formats: ZIP and RAR. Simply opening the file in USB Disk decompresses it and allows you to view it right away.
While testing USB disk, I inadvertently found this was also true of Air Sharing. The benefit of USB disk, however, is that it's free (with ads). The benefit of Air Sharing is that you don't have to connect your iPad to your computer should you want to transfer over any of the downloaded files (as Air Sharing is designed to do that over Wi-Fi). Thanks willeemammoth!