What is the purpose of the new shader compiler flag?
Beginning with the December 2006 DirectX SDK, the new HLSL compiler that was developed for Direct3D 10 has been enabled for Direct3D 9 targets. The new compiler has no support for ps_1_x targets, and is now the default compiler for all Direct3D HLSL shaders. A flag for backwards compatibility can be used to force ps_1_x targets to compile as ps_2_0 targets.