STUART FORSYTH .com

I think this is a very important point when considering whether to convert to DNG on import (or round-trip to DNG in order to work with the RAW files in Apple Aperture which does not support the RW2 format yet).

In a nutshell, the RW2 RAW file contains additional metadata which  allows certain manufacturers to compensate for issues with their lenses; in the case of the LX3 it seems this information contains information to compensate for barrel distortion.  The DNG specification does not allow for this additional metadata at this time although Adobe has been very transparent about this and is planning on including it in future releases.  So when you convert your LX3 RAW file to DNG, essentially what it is doing is demosaicing the file and creating a linear DNG which explains the size jump of about 3 times the RAW file.

As this data is demosaiced, and therefor not a true reflection of raw sensor data; my advice if you are round-tripping your LX3 files to DNG in Aperture or have DNG conversion as part of your long term archival strategy is to keep your RW2 files.   If you demosaic the file you are losing information, this is fine post processing when you are happy with your adjustments however this is not an optimal thing to be doing when importing your file.

Here is a snippet from Adobe:

With the release of Camera Raw 5.2 (and upcoming release of Adobe Photoshop Lightroom® 2.2), there is an important exception in DNG file handling for the Panasonic DMC-LX3, Panasonic DMC-FX150, Panasonic DMC-FZ28, Panasonic DMC-G1, and Leica D-LUX 4. For those who choose to convert these native, proprietary files to the DNG file format, a linear DNG format is the only conversion option available at this time. A linear DNG file has gone through a demosaic process that converts a single mosaic layer of red, green, and blue channel information into three distinct layers, one for each channel. The resulting linear DNG file is approximately three times the size of a mosaic DNG file or the original proprietary file format.

This exception is a temporary solution to help ensure that Panasonic’s and Leica’s intended image rendering from their proprietary raw file format is applied to an image when converted DNG files are viewed in third-party software titles. The same image-rendering process is applied automatically in Camera Raw 5.2 and in Photoshop Lightroom 2.2 when viewing the original proprietary raw file format.

In a future release, Adobe plans to update the DNG specification to include an option to embed metadata-based representations of the lens compensations in the DNG file, allowing a mosaic DNG conversion. In the interim, Adobe recommends only converting these files to DNG to allow compatibility with third-party raw converters, previous versions of the Camera Raw plug-in, or previous versions of Photoshop Lightroom.