TC_Default should work fine but you need to convert your normals from 0...1 to -1...1 space manually, x*2-1 or (x-0.5)*2. http://abload.de/img/dxt1normal029fju1.png
Make sure your shader is scaling the raw values properly. Multiply your colors by 2 then subtract 1 will move them from 0-1 to -1 - +1. So painting with 127 (or 0.5) will be 0 offset. 0 will be -1 offset and 1 will be +1 (or subtract 1 and multiply by 2. A constant bias scale node is what you need. Bias of -1 scale of 2.)
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