If you use a different texture format (RGB24 I believe) it works fine, without the error msg.
But I have to use DXT5 and even if the problem is some kind of a non-event (because the program still runs fine), the red error msg are a bit annoying, feels not good.
This is caused by the fact that DXT5 textures should at least be one DXT block in size (4x4 pixels) so creating a 2x2 or 1x1 DXT texture is invalid. We noticed this issue previously and it should be fixed (by giving a clearer error) in 2021.