first: you need at least D3D8/D3D9/D3D10/D3D11 or openGL3.x as renderer to get this working.
if you dont have it yet, download and install it.

once installed: search your unrealtournament.ini for "S3TC" and set the settings to "true" within your renderers section

now save a copy of your exsting texture folder somewhere to be on the save side.
after this, extract the utx files to your ut-textures folder and overwrite the smaller existing files.

start the game and hf.