Yes it does create a new DDS.
I was going to ask that, but you mentioned in a reply to boof that you had a few choices, so I assumed you had checked. I guess that's another point about what happens when you A$$ume.Sounds like a plan to me! I still have to setup my bump mapping plug-in.
BTW my specular problem turned out to be from not saving as a 32bit TGA, I was set at 16bit, how stupid was that!! Its always some little detail that I get all screwed up on