It appears that AE's Tiny TNT is not compatible with PNCR's way of making Compressed Iron as it destroys the Iron instead.
I liked using Tiny TNT back in 1.7.10 to start Pneumaticcraft because of the smaller explosion. Would it be possible to add it back?

It is enabled, it did damage the blocks.
If you can't find what's wrong, I also have Environmental Creepers installed, I know it can change explosions and block damage.
Maybe it's worth testing with just AE+PNC:R.

Just did some testing, and ExplosionEvent.Detonate doesn't get fired when Tiny TNT explodes (it does get fired when regular TNT explodes, and when creepers explode). If it worked in 1.7.10, that sounds like something's changed in AE2. It would be worth asking them about that.

Update: had a look at EntityTinyTNTPrimed in the AE2 source: they're not posting any events there. They should be posting an ExplosionEvent.Start and ExplosionEvent.Detonate in EntityTinyTNTPrimed#explode(), IMHO. You'll need to take that up with them, I'm afraid.

Yeah, I'll take a look at that. Tiny TNT should work, so it's a bug that it doesn't.

I wonder: could you check if you have tiny TNT block damage disabled in your AE2 config?