Update, working on a prototype and looks very promising. What's the most surprising is how few iterations i need to make on larger blocksizes to get some results. So unless i'm screwing up my code and what is happening, i'll be getting a prototype done fairly soon.
But i must say, variable length and encoding and interleaving is a pain in the butt! Had to start over like 5 times.
Though if the prototype works really well... Better not jinx it. First thing is first. This is though why i'm not as busy with my OCR jobs as i was, as i'm occupied on this project.
Intended purpose for a theoretical compression algorithm... We'll see.