Yes, deflate is good enough and we have it already.
There are at least 3 different implementations of deflate decompressors
on the c64 already - mine, Pasi Ojala's and the one in the cc65 library.
All of them are published with source code.
There is even a c64 based compressor (Pasi's). (Though nobody who is
serious about compression on the c64 would actually use it for
compressing, that is all done on a PC now)
So you are completely wasting your time with deflate.
Besides, deflate is not really appropriate for most c64 applications as
it has huge memory requirements and only gets efficient with large files
of 32k+.
If you wanted serious compression you would be looking at lzma/lzma2 etc
as a START, but that is not useful for the c64 anyway (LZMA has a
minimum window of 64k which rules out the c64 instantly).
If you are talking about file > memory decompressors that is a separate
issue and that has already been done to death with modern
crunchers/packers designed from the ground up for the c64 as mentioned
by Groepaz. They don't have the resource requirements of deflate for the
decompressor.