I changed the flag on a block's textured surface from "none" to shaded.
Ran the compiler using "update textures" w/o any problems or errors reported and clicked "ok"
When I went to run the level, I received the following error:

Error E2005:
"Can't create D3D texture of width 0."

I guess my question is shouldn't the compiler have picked up on any potential problem like it does for other instances, invalid blocks, etc. before I ran the level?
Its the first time I've seen this and couldn't find it in a search, so sorry if its been covered somewhere before.
Thanks

The compiler only looks for level geometry issues, it leaves the rest for run time issues. That is my experience. Does the same thing if you have code issues. Tells you everything at run time.