Reproduction Steps:
1. Import attached project.
2. In Project, select texture "DXT1".
3. In Inspector, mark "Alpha is Transparency" as active.
4. Make sure Compression is set to "Normal Quality" or lower.
5. Apply changes.

Expected result: Alpha becomes transparent.
Actual result: Alpha remains unchanged (green).

Note: When set to High Quality, alpha becomes distorted.

Reproducible with: 5.5.2p3, 5.6.0f1, 2017.1.0a3
Not reproducible with: 5.4.5f1, 5.5.2f1,
Regression introduced in: 5.5.2p1

Note: This case is most likely related to case 890843. In that case, a similar issue arises with DXT5 textures. However, this bug is reproducible with 5.5 versions of Unity. A DXT5 texture is added to this project for comparison.