Python 2.0 demonstrates the problem, too.

I'm not sure what this is: a zlibmodule bug/oversight or
simply problems with zlib's API.  Looking at zlib.h, 
it implies that you'd have to call inflate() with the
flush parameter set to Z_SYNC_FLUSH to get the remaining data.  Unfortunately this doesn't seem to help -- .flush() method doesn't support an argument, but when I patch zlibmodule.c to allow one, .flush(Z_SYNC_FLUSH) always fails with a -5: buffer error, perhaps because it expects there to be some new data.

(The DEFAULTALLOC constant in zlibmodule.c is 16K, but this 
seems to be unrelated to the problem showing up with more than 16K of data, since changing DEFAULTALLOC to 32K or 1K makes no difference to the size of data at which the bug shows up.)

In short, I have no idea what's at fault, or if it can or should be fixed.  Unless you or someone else submits a patch, I'll just leave it alone, and mark this bug as closed and "Won't fix".