The problem with 4-bit format is that ambiguous bases are so rare in a full reference that it's more efficient to handle the ambiguous bases in a special code path, rather than waste the 2 extra bits per base.
The 2-bit format stores only ACGT, with regions of 'N's stored separately (since N's are mainly contiguous in the reference genomes).
http://genome-source.cse.ucsc.edu/gitweb/?p=kent.git;a=blob_...
The reason I started development on this to begin with was because I found myself banging my head against a wall when trying to use BLAST to identify sequences that matched a rather loosely-defined DNA-binding consensus sequence. The potential combinations of nucleotides multiply exponentially when you have degenerate nucleotides in your search query.
It wasn't the reference I was concerned with, it was the sequence I was searching for. :)
But that's the lazy approach :) Good article.
If BLAT is using this method for counting matches, I'm unaware. The algorithm is reliant on storing nucleotides in 4 bits, so I doubt it uses this exact method.
