Do we know it really doesn't support it in hardware? Wouldn't be the first gpu which supports it but it's not enabled in OpenGL due to licensing costs...I'm sure lack of DXTC in hardware won't lock out phones from WP7 if Nokia really wants to deploy it this way. It'll just mean that the textures are decompressed in the drivers, same with paletted textures on a lot of GPUs today.
Uncompressing in the driver sucks though, eats up ram and these chips are starved enough for bandwidth that just increasing texture bandwidth usage by a factor of 4/8 isn't really what you want to do (could recompress to etc of course but that's probably not what you want to do neither).