I think you might be making it a little too difficult on yourself
* make backup copy if desired
* gunzip it
* mount it
* modify files in the mounted loop
* unmount
* gzip -9 < initrd > newinitrd
... that way you gzip the actual unmounted image and not a copied directory structure from the image. Something else that may be helpful depending on how you want to approach things, man mkinitrd... I think that's probably the script folks are referring to for rebuilding the image from your copied directory structure.