I tried using the compression tool and the files did not work. I figures there had to be something more to do but was at the end of my knowledge limits. Any assistance getting those into a format useable by Hak would be great.
What exactly do you mean by, "the files did not work"?
If by that you mean, they are not viewable with a program such as gimp or irfanview or photoshop, then most likely they will work in NWN. BioWare's DDS format is not the same as a Direct3D DDS.
If by that you mean, you have no DDS files in the out folder. I would have to answer by saying to try running the .bat file "As Administrator", or maybe even, if the compression tool is in your root directory, you may need to change permissions on the out directory.
[EDIT] I see LS has beat me to the second part of my guess [/EDIT] '>
All of this is mere guessing mind you, but it is the best I can give you at the moment.
MDA