The common DDS in shaiya are DTX3 (with or without Alpha), DTX5 (with Alpha or not)
The dds file is fuzzy as you said because it belongs to DTX3 with Alpha.
Download this software
Drag and drop images into the software, go to the File \ Save as\select DDS Texture \ DTX1 (No Alpha). Alpha will be no more and DDS will not be blurry