i followed:
http://www.celticwarriors.net/Website/Techpages/S3TCInstallation/Unreal226/S3TCUnreal226.htm
i checked the path that things were installed to as one post surgested.
i installed the latest divers from ATI for my x1950 card (AGP).
When i start the game and go into the advanced options and turn on S3TC and return to the game the sound continues but i just get a frozen desktop - no game is visible.
i need to CTRL-ALT-DEL to get the lock screen to pull up task manager to kill it.
please help.