If so, what colour format and what compression level(DXT1/3/5 etc)?
EDIT: I'm still working on cursors.txm if your interested. ( I ask because saving at the default values works..but doesnt appear to be visible in game)
Sometimes it does. Sometimes the game expects it only in certain format. Keep in mind that game will read DDS from MIPS node while TGA from MIP0-9 range. DXT1 doesn't seem to be the choice there - no alpha channel support. That leaves DXT5 mode pretty much.
What tools are you using? From my experience there are only two DDS authoring tools (okay, three) worth using. Firstly there is plug-in for Photoshop by nVidia. Then there is also a command-line tool which best suited for batch processing, plus it also makes use of hardware acceleration speeding up compression. And finally there is ATI Compressonator. Other software may allow you to save images into DDS but how much they support it is a different question. Plus what actions and modifications are you doing? I suspect the problem could be not in DDS but rather missing UTF nodes in material files, definitions in INIs and so forth.
