[captainpeter]

To see the differences between PNG, DXT5, DXT3 and DXT1 compression I have textured 4 cubes with a simple texture containing an alpha layer. (attached)

Left is PNG, then DXT5, .....

PNG uses 8 bits (256 levels) per channel RGB & A.
DXT5 uses 8 bits for alpha as well but incorporates compression for the A channel.
DXT3 contains only 4 bit uncompressed alpha showing distinct steps in transparency.
DXT1 is 1 bit alpha. Only usable for sharp masks.

The file size differences in .DDS files comes primarily from MIP-maps which are included in DDS and not in PNG. Usually X-Plane will adjust the texture size based on your rendering settings. At max settings X-Plane uses textures at original size, with every step lower in rendering settings your actual texture size for display will be halved. The process of adjusting a few hundred textures to - say - 50% takes time. By including scaled down versions of the texture in the .DDS file (MIPmaps) you significantly increase X-Plane's texture load performance.
It doesn't matter how big the file size actually is, it is primarily a question of CPU time wasted with texture adjustments.

So, for transparent textures I always prefer DXT5 over DXT3/1. There are only a few situations where DXT3 makes sense. No matter how large those files may be. They will almost always load faster than PNG due to MIPmaps.

cheers
peter