When using DDS images the black areas are not transparent like .pcx files. Does anyone know if there is a way to have this kind of transparency with DDS?

I am using Photoshop with the nVidea .DDS plugin.

Never mind. Since DDS has an optional alpha channel I suppose it isn't needed. The file size is still much smaller than a PCX, even with the alpha channel.

I switched several of my files from BMP to DDS after seeing how good it is.

Seems there is another one to get the alpha to work with DDS.

Don't create an alpha channel, and in the bmap leave whatever you want to be invisible, simply leave that blank. Then save as DDS Level 2 or above. (note, your file must be a single layer then).

That's interesting. What do you mean by DDS Level 2? Are you using the nVidea plugin? There are a lot of options but I don't see that one.