I'm not familiar with the PhotoSHop plugin, but in my messing about with .dds files, you need to be sure to re-save the file alpha channel information and in either DXT1 or DXT5 encoding. Sounds like you may have issues with the alpha channel... :hmm:
VERY useful app for loading/saving .dds images:
http://www.mnwright.btinternet.co.uk/
Go to the bottom of the page and use the download link. I use it in conjunction with the Gimp to work on SH4 textures and maps. Works great!
Cheers!
