if that were true, then why does the RADEON's sky look good? it uses S3TC right?
No, only nVidia supports S3TC (from the three listed cards). The V5 and Radeon don't have problems because they use their own texture compression algorithms and implement them via OpenGL extensions. Quake 3 doesn't specify how to compress the texures, only that they should be compressed.
If Quake 3 used precompressed textures according to the S3TC standard the image quality would be perfect on nVidia's boards, but wouldn't work on any of the other boards. Carmack went for the most compatible option given he can't use DXTC in OpenGL.
I guess nVidia could write their own texture compression algorithm like the other cards and use it in place of S3TC in games like Quake 3. This would likely make the drivers larger though. But who knows, maybe that's what they are working on right now.
It is a Quake 3 problem. It has nothing to do with nVidia.