The engine is pretty old school, so the only useful format that is accepted is plain uncompressed bitmap (*.bmp). Mipmaps have actually always been supported, just never actually used in the stock levels, so at the time, not even being familiar a little with the level editor, I assumed DDSCAPS_MIPMAP flag passed to IDirectDraw::CreateSurface function was a bug, as it caused black menu background when you paused the game, I removed it. The current version just checks some condition to decide whether to pass DDSCAPS_MIPMAP or not.
When texture is imported in the level editor, mipmaps can be created within its properties window...Edit->Create Mip Map... Unfortunately, there must be some bug in dgVoodoo that makes the game crash when mipmaps are used. And running the game through Direct3D 6 is a little slower and can even be buggy, particularly on NVIDIA cards. I noticed sometimes everything in-game would just turn black, tabbing out and back in would resolve it, but that's no solution. And you can't play newer games with old drivers. Though the little slower thing isn't much of a problem, but it will become a problem if game levels are updated in the future to have longer rendering distance. You can set Max Fog Depth to 200% in graphics options, which makes this possible.
With 512x512 textures, no mipmaps, there doesn't seem to be any slowdown, it happens when you put 1024x1024 all over the place, at least it happened with what little testing I've done.
Normal maps are not possible without a Direct3D hack like Anniversary Mod. There is another limitation which the mod doesn't solve neither, all textures are downscaled to 16-bit color depth. This probably needs to be addressed in the engine itself. One thing that is available is bump mapping, but that doesn't give the depth effect, I think. Either way, if any of these can be solved, it takes one really clever hacker to do it.
"Once a profound truth has been seen, it cannot be 'unseen'. There's no 'going back' to the person you were. Even if such a possibility did exist... why would you want to?" - Dave Sim