VIAHardware has posted an exploration of the quality sacrifice imposed by S3TC using S3´s and NVidia´s latest drivers. Here´s a snip:

When Unreal Tournament debuted, many were awed by S3TC´s supposed power. However, the visual quality increase wasn´t due directly to S3TC itself, but to the increase in texture resolution used when enabling S3TC. The use of texture compression in more modern games is tending toward decreasing the constraints of limited memory bandwidth, rather then increasing texture resolution and realizing similar memory bandwidth to the smaller, uncompressed texture. This is truly a tragedy, as texture compression is far too imperfect a technology to achieve flawless rendering with simple textures.

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