Paint.NET seems to have no trouble when I load up a .tga file and then go to Save As .dds. And Paint.NET is free.
http://www.getpaint.net/
Although when I go to save it, it is offering a bunch of Settings options that I have no understanding of. I can just let it use default if I want to, though.
Also, just to mention,
my custom UI uses the old spells0x.tga files with no problem. As well as several other .tga files.
I guess I should convert them to .dds files, although I'm not sure how much of a difference that would make.
Checking Google, I see that Nvidia offers texture tools, which might offer the best possible conversion:
http://code.google.com/p/nvidia-texture-tools/
It seems to be a 64 bit program, so you do need to have 64 bit Windows.
Here's a FAQ that I thought was useful:
http://www.shatters.net/forum/viewtopic.php?f=5&t=7034
My brain hurts when I try to understand all the possible options on this. But I can always just go with the default in Paint.NET if I want to :).
UPDATE: Actually, you don't need to convert them at all. Looking at the Default UI folder from SOE, they have the spells as .tga files. Many of the SOE files in the Default UI are .tga, with just the dragitem (items) and gdb (guild banner) files as .dds.
I'm guessing they only changed the items and guild banners to .dds because those are the ones you see when you look at Norrath, while the .tga ones are just seen in your UI. Only when you are staring out at Norrath does performance become an issue, and then you want the mip mapping abilities of .dds files.