I would not put too much stock into whatever Epic/Tim Sweeney has to say, frankly. The unreal engine may be visually impressive, but it is incredibly clunky and inefficient compared with just about any other engine out there at the moment and always has been. Tim is the guy who is claiming that unless your hardware fully accelerates FP32 his next title won't even run properly on your machine.
They haven't bothered to check DXT1 quality on anything but nVidia cards in the linked article. You can clearly see from nutty's screenshots that ATi hardware murders DXT1 quality just as badly.
In fact it isn't really a hardware issue - it's a limitation of the DXT1 format - it simply isn't suitable for high quality textures.