GMAX -> FSX, Texture types?

This has probably been asked countless number of times, but I have been searching/reading for along time both on this forum and others, without finding an answer.I'm trying to make some FSX scenerey objects in GMAX for use in FSX sp2.When I try to use the object in FSX, it will only show textures if they are saved as extended BMPs, for instance in DX1 format, not DDS files. I have tried many combinations of the settings in the exporter window, never seen a change, though. I'm using the image tool from the SDK to do the conversion. Any texture type except the standard extended bitmaps in BMP format will render the objects as black with no texture. I thought I was supposed to use the DDS format?