WinMerge uses FreeImage to implement its image comparison functionality.
A report was received from a WinMerge user stating that a DDS image was not being displayed correctly. After investigation, it was found that FreeImage 3.18.0 cannot handle DDS images that are not a multiple of 4 in size.

The report can be found at the following link: https://github.com/WinMerge/freeimage/issues/14

Although I am not familiar with DDS, it appears that the issue has been addressed in the following commit and DDS images can now be read correctly.

https://github.com/WinMerge/freeimage/commit/6f478909d55e0d36d59c75e3967a0584f99565d7