Ah, I think I understand now. I had seen this comment from arc.arc:
; Composes in functional position are transformed away by ac.
And your examples show how 'compose gets transformed away, but I was having trouble visualizing a case where that wouldn't happen. Now it seems obvious to me: if you have (compose a b), rather than ((compose a b) c), then you can't transform compose away, because something is needed to make a and b act like one function.
