When I extract textures from RW to repaint, I usually convert the DDS files to BMP files since they're much easier to work with in my opinion.
Kali posted about a great program called
DXTBmp that makes it really easy to do. And once you're done editing, DXTBmp can convert them right back into DDS files.
About your screenshot, it looks to me like you might have rotated the template while you were editing it but forgot to rotate it back to it's original position before saving and importing it. I've done this a few times myself. Just make sure when you save the template that it is oriented correctly.