Unless this has to do with the warning I get about expected KTX-Software version, this might technically be an issue with gltf-transform calling toktx with the wrong flags.
=> adding @donmccurdy.
(I understand that it's usually not a good idea to compress normal maps to ETC1S. I'm just doing some quick tests of the different tools available for manipulating 3D assets, with focus on "does it work (at all) in my current dev environment".)
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After the Texture compression failed: ... at the end of your error snippet, was there any other error output?
If not, can you run the command that failed (toktx --genmipmap --bcmp --normal_map --assign_oetf linear --assign_primaries none /tmp/tmp-149058-ssajk7wetT02-.ktx2 /tmp/tmp-149058-CLaOagTPHN3l-.jpg in this case) and see any other output? You may need to re-run the original gltf-transform command first to create the tmp files.
The --rdo-quality option was replaced by --rdo back in March (in KTX-Software) and so glTF-Transform was updated to include that. The two are not the same thing though, and do not take the same values. The document should probably be updated to use --rdo, yes.