Artists don't like lossy compression.
They particularly don't like DXT texture compression. "I spent hours slaving away to create this beautiful, pristine image, and now you want to do WHAT to it?"
But the thing is, you don't get to make a simple choice between uncompressed vs. lossy compressed textures. Consoles like Xbox 360 only have a finite amount of memory, so the real choice is, how can you get the best results from this fixed amount of space?
Given one megabyte of memory, you could spend the whole thing on a single 512x512 uncompressed texture. Or you could use just half of it for a 1024x1024 DXT1 image, and have room left over for a second texture of the same size.
When artists complain about the artifacts caused by DXT compression, I like to point out that this is a tradeoff between quality and resolution. Do you prefer small and blurry but otherwise high quality textures, or larger and more detailed ones that have lossy compression artifacts?
Not always an easy decision...