The solution has been found. When saving from PS I was saving as a 24 bit bitmap. I had tried 32 bit but by the time I got it into FSX I'd end up with an all light blue plane like a non DX10 plane loaded with DX10 on.
By going into advanced mode while saving and selecting the 32 bit A8 R8 G8 B8 option it loaded up fine in FSX. I believe this was due to my alpha channel.
Also, I unchecked the "include mipmaps" box in DXTBitmap when saving there.
Looks much better now. (click to resize or it looks terrible)
The file came out at 16,385 kbs. i hope this can help any other beginners that may read this.
Rob.