Earlier quoted context omitted.
The challenge was to provide a decompressor for one file, not any or all files. This proof of the impossibility of a compressor that can compress any file has been known for decades.
Yes, but you don't get to see the file until after you've sent in the $100. So in order for this to be a good bet, you'd need a method that can compress a random file with at least 2% ($100/5000) probability. That's still quite difficult. An example of an algorithm that does compress 2% (actually 1/32 ~= 3%) of random files: just drop the initial five bits of the file, and replace them with zeros upon decompression.…
No, you'd need to be able to create a custom algo for that file with that probability. Quite a difference.