I think those warnings are due to a GHC bug.

With the code I gave above, GHC 6.12.3 gives me a warning (with -Wall, which I always use):

Warning: Pattern match(es) are non-exhaustive
         In the definition of `<*>':
             Patterns not matched:
                 ZVec (_ :< _)
                 (_ :< _) ZVec

Adding the following cases silences the compiler.

ZVec `applyV` (_ :< _) = ⊥
(_ :< _) `applyV` ZVec = ⊥

In a chat on #haskell, benmachine found that GHC 7.0.1 balks at these extra definitions as ill-typed, but also warns of non-exhaustive patterns when the lines are removed. In that chat, dafis pointed to a relevant ghc bug report.

instance Applicative (Vec Z) where
  pure _ = Nil
  Nil ⊛ Nil = Nil

instance Applicative (Vec n) ⇒ Applicative (Vec (S n)) where
  pure x = x :< pure x
  (f :< fs) <> (x :< xs) = f x :< (fs <> xs)

This seems to work as expected. It is quite nice to see that GHC is now able to infer that both definitions of pure and <*> are total, and doesn't generate any warning using -Wall unlike with the definition of <*> given in your post.