Don't forget to add these lines to your .ini files: 
Find your Unreal.ini or UnrealTournament.ini file located in your system 
folder and add these lines under the OpenGl list: 

RefreshRate=75 (or whatever your monitor is set at) 
DetailTextures=1 
UseTrilinear=1 
UseS3TC=1 
UseTNT=0 
LODBias=0 
UseMultiTexture=1 
UsePalette=1 
UseAlphaPalette=0 
Translucency=1 
VolumetricLighting=1 
ShinySurfaces=1 
Coronas=1 
HighDetailActors=1 
MaxAnisotropy=0 
AlwaysMipMap=0 
UsePrecache=0 
SupportsLazyTextures=0 

After you do this you can now go onto disc 2 in UT and copy 
the S3 compressed textures to your textures folder.