It supports sprites and I also wouldn't play without them - try, for example, the 'lazy newb pack'[1] which includes the popular sprite packs in the installer. There seems to be a newer kit [2] but I haven't tried that.

[1] http://www.bay12forums.com/smf/?topic=59026.0

[2] http://www.bay12forums.com/smf/index.php?topic=126076.msg425...