I have never worked with .dds files, but I wanted to point out that Nvidia has some tools on their site for working with .dds files. I am not sure if it is any better than the Dxtbmp file that you are using.
Nvidia link:
http://developer.nvidia.com/object/n...ure_tools.html
They have a photoshop plugin (I havent used it so I dont know if it is helpful)...may give it a try sometime soon.
Also, I was poking around looking at some of the .dds files with the program above and found that many of the images from SH3 are included in the SH4 install folders
I have only looked in some of the gui folders, and many of the old menu icons are included in there
Ooh. the thumbnail viewer rocks for getting a quick view of what the files are in windows explorer