I was able to resolve this on a per-request basis by adding this script to the mock response:
headers = mockRequest.requestHeaders;
headers.remove("Accept-Encoding");
Removing the Accept-Encoding header forces SoapUI to use identity encoding (uncompressed).
I was unable to resolve this through the preferences as suggested.
Answering this old post in case someone else runs into this issue.
For me, it was ServiceMix(Camel) that was sending Accept-Encoding: gzip,deflate but could not handle a compressed response and complained about an illegal unicode character.