Quote from guru3d:
"It seems like GF/GF2 use 16-bit texels after DXT1/S3TC texture decompression (that's why sky into q3 looks so ugly). I don't think that it's a drivers' problem, I almost sure that it's a bug into NVidia chips. If it's really hardware problem, software developers must use other compression formats (DXT2-DXT5 or S3TC with alpha) to avoid ugly banding effects like sky into Q3".
Patch forces DXT3 instead of DXT1.