Probably not smaller textures, as some people have suggested, but more colourful ones at the same size.DarienA said:
Almost all textures in PS2 games are compressed with 4bit CLUT, so S3TC doesnt improve on that. What it does improve is the range of colours that can be used - 16 with 4 bit CLUT, as opposed to 16 million with S3TC. There is the limitation of only four colours within a 4x4 texel block of S3TC. That could prove to be a problem, with the relatively low res textures of current consoles.