As far as I know, dtx5 compression makes a really lousy job with normal maps, and one way to get around that is to copy the red channel to alpha and tweak the shader to use that - apparently you get improved results with less chunky normal maps.
Also, if you are using Photoshop, DO NOT use NVidia's plugins to compress your .dds textures. Use DDS converter 2 instead - its faster and does a better job. And it can work with Photoshop format and do batch jobs.
That said, I am still curious how Ironclad managed to keep the fine detail in their .dds textures... there's hardly any distortion or pixellation present, something which plagued me since day one and still does to an extent since I use very high detail texturing for my work.