I love you (and shaneturner12)
Although I must say, what the **** is a graphics option doing buried in the Content Manager?
Texture compression is a feature used at the point where the texture is converted from an image file, into a .texture file, thus it is logically a function of the content manager, since that step takes place when the asset is committed to the database - which is why you also need to re-commit assets after turning it off.
And surely hardware compression is better? Or does the software do it at game launch, and therefore there's no detrimental effect on in-game performance?
Performance wise it won't make any real difference, other than it might increase the load time for a session/route a few milliseconds longer. The one place where it will make a difference is in VRAM usage, as DXT compressed images are naturally smaller in memory. If you have a video card with only 512MB of video ram then you probably would be best off trying to work out why your drivers aren't supporting texture compression anymore, but with 1GB or more of video ram you're probably not going to have an issue.
The problem that is occurring is not consistent across video cards or drivers, lots of people have suffered it, but then there are also many of us that haven't suffered it, even with the same cards and drivers as those that have.
My guess would be that it's some setting in the drivers that is blocking OpenGL from using DXT - at a very rough guess, there is a nVidia option called 'enable extension limits' which turns off a lot of the more esoteric options in OpenGL, and might well block the ability to produce DXT compressed textures. So you might want to check that your application or system profile doesn't have that option enabled. Another possibility is that CUDA is disabled in the nVidia settings. Also weird things can happen with the default settings when used with dual monitors, sometimes its best to force 'compatibility performance' mode for multi-monitor mode.
Debugging and locating what is causing the problem is probably a long process, and some of these settings seem to have vanished in more recent drivers - although can be re-exposed by using other tweaking programs like 'nvInspector'. It's probably just easiest to turn off the hardware compression and get on with your life unless turning it off gives you a noticable loss in performance.
(While this issue seems to affect nVidia users more than ATI, it does seem to occur on some ATI cards too, and they all pretty much have the same set of performance/quality settings to tweak, there may be a difference in default settings, or default settings for a given performance profile)
