Truly Unreal
S3TC is the way Unreal was meant to be played. You really have to see this thing in action to believe it. Unreal running with S3's Metal API supports 2048x2048 textures in full 16-bit color using S3TC. Movement speeds were fluid, rarely dropping below 30 fps, and the detail of the large textures was nothing short of astounding.
Another benefit of S3TC is the ability to create high framecount animated textures. In the dms3movie level, 5 displays were playing looping video textures in real time, three of which used alpha-blending and transparencies. The main drawback to animated textures is the same with large 512 or 2k textures - size. Using S3TC, each individual frame (combined making up the movie) can be compressed by up to a 6:1 ratio, saving a huge chunk of memory space, as well as bandwidth.

Walk straight into the wall. No pixels!
After a few minutes of staring at walls, I began to appreciate the not just the detail of the textures, but also the lack of detail textures. This kludge uses "close-up" textures are normally superimposed over standard textures in Unreal at close range, to mask any resultant blurring or pixelation. However, with texture compression, details up close are even more well defined than at a distance, so the use of detail textures is no longer needed.

Comparison to a standard 256x256 texture
The only unfortunate side-effect of texture compression is disk space - as games start using more and more large textures, games are going to rapidly increase in size. Quake II's full installation is 400MB, Unreal's is even larger. Imagine 20MB of textures per level (or very likely more), and you've got yourself one heck of a reason to get DVD-ROM.