It is not surprising that you ask about this topic for it is a very little studied phase of the complicated relationship between Nazi Germany and the Soviet Union. As you mentioned, many communists were gravely troubled by the rapprochement between Hitler and Stalin, leading to widespread disaffection in many of the Western Communist Parties. I would highly commend to you Roger Moorehouse’s “The Devils’ Alliance” (Hitler’s Pact with Stalin, 1939-1941; 2014) as one of the few references dealing with the 22 month pre-Barbarosa collaboration between these ideological enemies.
Prior to the Ribbentrop Molotov pact, the KPD had been
“… outlawed since the Nazi seizure of power in 1933, it had been forced underground, its members subject to arrest and persecution, and given only limited succour via the often tortuous lines of communication with their superiors Moscow. The fate of its leader, Ernst Thalmann, was indicative of how far the party had fallen. Once the giant of the political scene who had contested the presidency in 1925 and 1932, Thalmann was arrested by the Gestapo barely a month after Hitler came to power. Kept in solitary confinement, he was repeatedly questioned, abused and beaten-losing 4 teeth in one interrogation-but never granted the dignity of a trial. He simply disappeared, shunted between a succession of prisons and concentration camps from which he would never reemerge.”
“By 1939, the German Communists have been reduced to an underground fringe movement, isolated and largely swimming against the tide of public opinion, with its lines of command fractured, compromised and unreliable. Little wonder that the Nazi Soviet Pact was viewed with utter bewilderment in German Communists circles. Officially, at least, it was greeted as potential lifeline with the party announcing its approval of the pact as a “blow for peace” and expressing the hope that further, similar pacts would follow. Some Communists went further, speculating that the pact would signal an end to the persecution with the expectation that they would soon be able to hold their meetings without hindrance and that Thalmann and other prisoners would be released.”
From the tenor of your question, it appears that you reasonably suspect that this situation might have changed for the better, at least from the Communists’ point of view. After all the “line emanating from Moscow… came perilously close to advocating a political truce with Nazism, with communist energies instead to be focused on attacking the Western Powers as the true enemies of world revolution.” From Moscow, Walter Ulbricht, who later achieved considerable success in East German politics, “… blamed the war squarely on capitalism and “big business”, and branded British imperialism as more reactionary and more dangerous than Nazi imperialism, indeed as the “most reactionary force in the world”. Similarly, Izvestia ridiculed the West’s “war on Hitlerism” while the KPD’s official newspaper explained the rapid conquest of France and the Low Countries as the result of “the baleful politics of the ruling classes in England and France and their social democratic lackeys…”
However, Hitler was not to be mollified, his hatred of Communism never flagged, and “the Gestapo’s attention had scarcely lessened…” while most Communists lapsed into inaction with confiscations of communist leaflets declining from a monthly average of 1000 prior to the pact down to 82 by spring of 1940 and arrests of communists, declining from over 950 in 1937 to a mere 70 in April 1940; so that in June 1940 the SS could “no longer speak of organized resistance from Communist and Marxist circles”.
Accordingly, it seems that the short answer to your question is that the Nazi state brutally suppressed the KPD from the moment they acquired power, this continued through the 22 months of the pact, and that the only reason for the decline in arrests and confiscations of literature during the 22 months of the pact was the utter passivity of the KPD in that time frame leading “… one prominent historian of the period… [to describe]… the German Communists of that era as ‘the most shameful of Hitler’s accomplices’”.