Yup, PVRTC is limited to square textures, and it's also really, really bad as far as compression artifacts go. Unfortunately you are pretty limited here. Your best bet is to see what can be split up in your atlas into smaller, prefferably 9-sliced components. For example, take the following sprite:

It can easily be split up as it has one corner pattern, which can be one small sprite, and a repeating side pattern, which can be a tiled sprite. End result, this image can be reduced from 128x128 to a pair of 16x16 sprites.
With enough optimizations like that, it's possible to reduce large atlases down to a fraction of their size, letting you turn off PVRTC compression and maintain UI crispness.