In this paper, we propose a system-level error tolerance scheme for systems where a linear transform is combined with quantization. These are key components in multimedia compression systems, e.g., video and image codecs. Using the concept of acceptable degradation, our scheme classifies hardware faults into acceptable and unacceptable faults. We propose analysis techniques that allow us to estimate the faults? impact on compression performance, and in particular on the quality of decoded images/video. We consider as an example the Discrete Cosine Transform (DCT), which is part of a large number of existing image and video compression systems. We propose methods to establish thresholds of acceptable degradation and corresponding testing algorithms for DCT-based systems. Our results for a JPEG encoder using a typical DCT architecture show that over 50% of single stuck-at interconnection faults in one of its 1D DCT modules lead to imperceptible quality degradation in the decoded images, over the complete range of compression rates at which JPEG can operate.