For solid objects, DXT1 without alpha does the trick. For anything with transparency I'd think DXT3 will be needed, especially to blend the ground poly edges with the surrounding scenery, but Clive is the authority here. DXT5 isn't used in CFS3, that's an FSX feature.
In aircraft you can also use DXT1 with alpha for transparency but it's a simple fully transparent/fully solid texture type and for small bits like gauge faces I found unpleasant artifacts around the solid/transparent boundaries. Using DXT3 instead cured that problem.