The main reason against using dds for this is that even dxt compressed files aren't compressed as efficiently as the correspondent png files would be. In addition, there's no advantage to using dds in that particular scenario.
i just did a test to see what format gets better compression size (not necessarily quality). i took a frame from one of the fs port ani files @660x300, upsampled it to twice its size, did a gaussian blur of 1 and scaled it back to its original size, this is to remove artifacts from being in a paletteized format. from photoshop i saved the file as both bitmap and tga. i reloaded the tga format into photoshop and saved it as a non-interlaced png file. and i closed it. i did the same with dds, saving as dxt1 with no mipmaps. here are the numbers for the file size
bmp (24 bit) = 594,056 bytes
tga (24 bit) = 594,044 bytes
pcx (8 bit indexed) = 159,970 bytes
png (non-interlaced 24 bit) = 159,347 byte
ani (1 frame) = 145,847 bytes
dds (dxt1 no mips) = 99,128 bytes
jpg (maximum quality) = 89,721 bytes
jpg (medium quality) = 25,905 bytes
bmp and tga all store their data as 24 bit in this case, the only file size difference is in headers/footers/formating. dds compression is very predictable (you always get 4bpp with dxt1/a). png as far as i can tell compresses differently based on content, so this format may not always yield the same size depending on the content of the animation. still at about 30fps and 660x300 were still talking 2904 k per second of animation for dds. png is not quite better than pcx indexed color (in terms of size). jpeg seems to give the smallest size file, and the modder can choose the best quality settings for the situation. in the range of 758k-2628k per second at 30fps, depending on quality.
i do not think we need a full 24 bit image format (dds is technically 16 bit), nor do we really need a lossless format. theres a reason the majority of video formats are lossy, and its because the amount of data is huge.
dds jpg is the best bet if we just stick single frames into a container. still, i dont think single frame compression formats are the answer. there is no cross-frame compression. so we need a format that can play in a sub window, that has fairly good compression and quality, that supports keyframes and transparency. good luck.
*edits*
added new formats for compairison. edited for sanity.