1) I also get the same problem as I think 3 other people that have posted in this thread...It says that it is the wrong type of file.
2) I BELIEVE (not sure on this) that you are supposed to download another program and change the .dds to .jpg or anything else, that is openable by photoshop and place it in a seperate folder. Then complete your edit, save it, and place it back into the original Conquer folder and replace it with the old one.
* I am not sure on this and will look into it more, I just wanted to let people know that there may be a solution to their problems, and I will post a download for that program of the .dds changer if it exists (sometimes I think something exists and when I check for it, it was like a dream or something...weird...)
[EDIT]
The program I earlier referred to does in fact exist, so I will post it right here.

It is a really small file.
I recommend that you copy the file you want to edit into another folder, and then change that from a .dds file to .psd file (for Photoshop). Then you just open the file that was placed into the folder by the DDS Converter and it will automatically open Photoshop and you will then be able to edit the file. Then when you are done editing, YOU MUST REMEMBER TO CHANGE THE FILE BACK INTO THE .DDS!!! YOU CAN DO THIS BY USING THE .DDS CONVERTER PROGRAM! If you do not do this then the edit will not work!! After it is changed back into the .dds then you just replace the old file in the Conquer folder with the newly edited one.
Just wanted to help some people out with that problem they were having. =)