Why are you using Paint.Net to export to DDS?
nVidia has a Photoshop plug-in that will allow you to save-as .DDS.
http://developer.nvidia.com/object/p...s_plugins.html
However your quality may not improve significantly. That is due to the nature of the DDS format. The settings we use, DXT1, ARGB, 4bpp | 1 bit alpha means that you have 4 bits per channel, 12 bits per pixel (plus 1 alpha) = 4096 colors. You lose a lot of color depth in going to DDS, which makes it look grainy.
I don't know if EQ2 can read an alternate setting which would give us higher color depth, but I suspect even if we could the files would be a lot bigger.