Gee, I don't see how it could not be. It isn't listed on the group of lenses that are supported by this underwater housing but if you can use the 14-42 or the 9-18mm which protrude far more from the camera body I don't see why it wouldn't. It is a pancake lens.
I keep the 9-18mm on my new Olympus ep-1Mini at all times, and it is a much longer lens than the 14-42. But if you like you should contact Olympus. I think it is just an omission that they don't list it on their support list for the underwater housing.
M.ZUIKO DIGITAL 14-42mm 1:3.5-5.6 II
M.ZUIKO DIGITAL ED 14-42mm 1:3.5-5.6
M.ZUIKO DIGITAL ED 9-18mm 1:4.0-5.6
Harold, thanks for your very helpful reply. I think you were the only person who fully understood my question!