Yep, I have done the same with my tatw game. Saved all the settlements as dxt1 and it halves the size of the texture file. I also did it for all the units too. It makes a huge difference in performance and you don't lose any quality. The normals work fine and the reflections/shine on armour and weapons are still there. If a unit does not have any grey shading in it's alpha, only pure black or pure white or both, then it can be saved as dxt1.