Spherical coordinates will give you pretty good precision in world space, especially in 16-bit.
Edit: ahhh... missread sperical with spheremap, my fault, the following statement is only valid for spheremap transformation. spherical should work like sugguested.
I see one issue with blind spots. From my experiences with all the compression algorithms from aras page, you will encounter a blind spot, a single vector, when approxiamated, will suffer in compression quality and therefore results in ugly artifacts. As example take a look at method 4, first algorithm. You will see that the normal (0,0,1) and (0,0,-1) have the same encoding, therefore the decoding of one of these vectors will be wrong. This seems to be just one case, but the artifacts I have experienced were really obviously.
This is no issue in view space, because you can adjust the algorithm to hide the blind vector (pointing into the screen), so that it is practically never compressed. But when you use world space, you will have spots where the blind vector is visible (e.g. lighting artifacts), and it will be clearly visible.