I did find a mention of it in a 1935 aeronautical compass report from the NASM archive. It is near the end of the report and has attached graphs comparing compasses of the period.

Here is that link, a bit of a monster. Found it by Googlingthe following
s.o.2 observers compass

http://209.85.165.104/search?q=cache:nJDibVdf5JoJ:ntrs.nasa.gov/archive/nasa/casi.ntrs.nasa.gov/19930091626_1993091626.pdf+s.o.2+observers+compass&hl=en&ct=clnk&cd=7&gl=us&client=safari

The reference reads
**********************
Opposite extremw of performance are shown in
6gures 32, 33, and 34 by the British S. O. 2. compaas
and the French Morel Petit model 28 compass. The
low Overswing and low swirl of the S. O. 2. compass are
Dbtai.nedby the use of an extremely light and relatively
Eragilemagnetic card. It has been the experience of
tie authors that thisimtrument is too fragile for service
use. The magnetic moment is so low that the pivot
must be in perfect condition if excessive friction is to
be avoided.
On the other extreme, the Morel compass
tms a very heavy floated card and a high magnetic
moment. Practically all American compasaea have
characteristic between the British and French ex-
tmrnes. Of the American compasses in this report,
Drily the
hravy7111and IX and the two KT compasses
have cards with floats

**********************