Emily,

When you say user activity is consistent, are you referring to the SQL Server or the SAN? I have seen similar issues with varied backup times related directly to SAN...

What type of replication did you setup? Is it Merge or Transactional?

Unless the report server has to be read/write, I would suggest log shipping from the production server to the report server, and continuing to do your backups of production how...

Another option beside compressing the directory would be to use a third party tool, such as Red-Gate's SQL Backup. This includes support for backup compression.