I emailed you the file. UT S3TC is pretty tricky stuff especially on the Radeon. To get it to work (properly), you have to use:
UT ver 4.32
The "old" LOKI patch
This UT.ini:
[OpenGLDrv.OpenGLRenderDevice]
UseGammaExtension=0
UseModulatedGamma=0
UseS3TC=1
UseTNT=1
MinDepthBits=16
MaxLogUOverV=8
MaxLogVOverU=8
UseMultiTexture=1
UsePalette=1
UseAlphaPalette=0
ShareLists=0
AlwaysMipmap=0
DoPrecache=1
Translucency=True
VolumetricLighting=True
ShinySurfaces=True
Coronas=True
HighDetailActors=True
DetailTextures=True
UseTrilinear=True
If you use 4.36 and the new LOKI, the tnt=1 doesn't work. You get those weird texture problems. With 4.36 and the old LOKI, you dont get the high quality S3TC textures. This is what I have seen anyway.