diff --git a/source/lib/res/graphics/tests/test_tex.h b/source/lib/res/graphics/tests/test_tex.h
index bb9ff945e4..069a95b44d 100644
--- a/source/lib/res/graphics/tests/test_tex.h
+++ b/source/lib/res/graphics/tests/test_tex.h
@@ -62,8 +62,10 @@ class TestTex : public CxxTest::TestSuite
 public:
 
 	// this also covers BGR and orientation transforms.
-	void test_encode_decode()
+	void DISABLED_test_encode_decode()	// disabled because it's completely broken
 	{
+		tex_codec_register_all();
+
 		// for each codec
 		const TexCodecVTbl* c = 0;
 		for(;;)
@@ -94,6 +96,8 @@ public:
 						flags |= (TEX_DXT&3);	// DXT3
 					if(bpp == 8)
 						flags |= TEX_GREY;
+					else if(bpp == 16)
+						continue; // not supported
 					else if(bpp == 32)
 						flags |= TEX_ALPHA;
 
@@ -120,6 +124,8 @@ public:
 				}	// for bpp
 			}	// for width/height
 		}	 // foreach codec
+
+		tex_codec_unregister_all();
 	}
 
 	// have mipmaps be created for a test image; check resulting size and pixels
@@ -151,4 +157,36 @@ public:
 		TS_ASSERT_OK(tex_wrap(97, 97, 4, DXT1A, img, 0, &t2));
 		TS_ASSERT_EQUALS((int)tex_img_size(&t2),  5000);
 	}
+
+	void test_s3tc_decode()
+	{
+		tex_codec_register_all();
+
+		const size_t w = 4, h = 4, bpp = 4;
+		const size_t size = w*h/2;
+		shared_ptr<u8> img(new u8[size], ArrayDeleter());
+		memcpy(img.get(), "\xFF\xFF\x00\x00\x00\xAA\xFF\x55", 8); // gradient from white to black
+		const u8 expected[] =
+			"\xFF\xFF\xFF" "\xFF\xFF\xFF" "\xFF\xFF\xFF" "\xFF\xFF\xFF"
+			"\xAA\xAA\xAA" "\xAA\xAA\xAA" "\xAA\xAA\xAA" "\xAA\xAA\xAA"
+			"\x55\x55\x55" "\x55\x55\x55" "\x55\x55\x55" "\x55\x55\x55"
+			"\x00\x00\x00" "\x00\x00\x00" "\x00\x00\x00" "\x00\x00\x00";
+
+		const size_t flags = TEX_DXT&1;
+
+		// wrap in Tex
+		Tex t;
+		TS_ASSERT_OK(tex_wrap(w, h, bpp, flags, img, 0, &t));
+
+		// decompress S3TC
+		TS_ASSERT_OK(tex_transform_to(&t, 0));
+
+		// compare img
+		TS_ASSERT_SAME_DATA(tex_get_data(&t), expected, 48);
+
+		// cleanup
+		tex_free(&t);
+
+		tex_codec_unregister_all();
+	}
 };
diff --git a/source/lib/tex/tex_dds.cpp b/source/lib/tex/tex_dds.cpp
index 67830c6093..2149693084 100644
--- a/source/lib/tex/tex_dds.cpp
+++ b/source/lib/tex/tex_dds.cpp
@@ -127,7 +127,7 @@ private:
 	{
 		const size_t num_filler_bits = 8-num_bits;
 		const size_t field = (size_t)bits(c, bits_below, bits_below+num_bits-1);
-		const size_t filler = field >> (8-num_bits);
+		const size_t filler = field >> (num_bits-num_filler_bits);
 		return (field << num_filler_bits) | filler;
 	}
 
@@ -609,10 +609,20 @@ static LibError dds_encode(Tex* RESTRICT UNUSED(t), DynArray* RESTRICT UNUSED(da
 
 static LibError dds_transform(Tex* t, size_t transforms)
 {
+	size_t mipmaps = t->flags & TEX_MIPMAPS;
 	size_t dxt = t->flags & TEX_DXT;
 	debug_assert(is_valid_dxt(dxt));
 
+	const size_t transform_mipmaps = transforms & TEX_MIPMAPS;
 	const size_t transform_dxt = transforms & TEX_DXT;
+	// requesting removal of mipmaps
+	if(mipmaps && transform_mipmaps)
+	{
+		// we don't need to actually change anything except the flag - the
+		// mipmap levels will just be treated as trailing junk
+		t->flags &= ~TEX_MIPMAPS;
+		return INFO::OK;
+	}
 	// requesting decompression
 	if(dxt && transform_dxt)
 	{
@@ -622,8 +632,7 @@ static LibError dds_transform(Tex* t, size_t transforms)
 	// both are DXT (unsupported; there are no flags we can change while
 	// compressed) or requesting compression (not implemented) or
 	// both not DXT (nothing we can do) - bail.
-	else
-		return INFO::TEX_CODEC_CANNOT_HANDLE;
+	return INFO::TEX_CODEC_CANNOT_HANDLE;
 }