I do not know of any plugins, but i can tell you the way i do it.
I found something called DDSView, which is a bit like the windows picture and fax viewer, but it allows you to copy, paste and save in many formats, DDS being one of them. It also allows you to browse dds files one by one (useful if you are looking for something in your data/dds folder and can't remember what its called.) It has loads of other stuff it can do that i don't use as well, oh, and its free! i got it from here.
http://www.amnoid.de/ddsview/
Make whatever you want to make in photoshop or whichever program you use. (make sure it is the right size in pixels that is needed for LFS, 1024x1024, 2048x2048, etc.
I personally flatten the image next, but i don't know if this is necessary or not, i just do it out of habit.
Open up DDSView.
Click on the paste icon (or press ctrl+V)
Click on save (or press s) Select the DirectDrawSurface (experimanetal) (*dds) option.
I leave the format option set to DXTC1 option as thats what it was set to as default, but again, i don't know if it has to be set to that, as there are a few options to choose from.
Choose your filename, and save it. Job done!