write your own TCompressedImage that extends TImage and especially TD3D7CompressedImageFrame that extends TD3D7ImageFrame with its own draw method and use DrawImage with that one.
See Indiepaths Render2Texture Module as an idea which creates its own textures as well as stock Max2D textures can not be used as render targets
See Indiepaths Render2Texture Module as an idea which creates its own textures as well as stock Max2D textures can not be used as render targets
Especially the r2t implementation should give you more than only simple hints on how to implement it cleanly.
As well as BRL.D3D7Max2D Module and the TD3D7Image (Frame) implementations
And you won't be able to safe that much of VRAM as you currently imagine. Any reduction of VRAM comes at a cost. DXT at the cost of quality reduction, so you will most likely use it for larger images like backgrounds etc, but not for everything. at least if your target was to have the same quality as with png
PS: and I would suggest learning the board tags. Its hard to impossible to take a "developer" serious that wants to mess with a System API but is not even capable of reading a simple board faq