DCS is just a fancy front end on what is really a DCC system. The type of current (AC or DC) makes no difference.
Technically, yes, but DCS does what DCC does without changing the electrical signal.
From what I understand, DCC, or Digital Command Control, takes an input voltage of between 13-24 volts AC or DC and converts or "distorts" the electrical wave into a square wave. (google a picture if you need a visual)
The DCC controller then regulates the timing and positioning of the positive and negative square waves making a code that the electronics, or decoders, can understand.
This can be a problem since conventional engines will see this square wave as an AC power supply. In an engine with a DC motor, this will cause a high pitched humming sound and eventually burn out the motor.
It is because of the need to run conventional and command engines on the same track at the same time that Lionel, Mth, and others have not fully embraced DCC. Ask yourself, would you want to install electronics in your 100 year old tinplate trains and ruin any value that they have, or would you want to run them on your DCC track and possibly have the motor burn out?
Therefore, Lionel and Mth developed systems that allow both command and conventional locomotives to run at the same time on the same track. It is not that it will not work on 3 rails or that it is just a DC power supply issue, it is that an inexperienced modeler may cause irreparable damage to a potentially valuable locomotive that is the main reason that DCC is not the standard for three rail O gauge.
That being said, it is most certainly possible to operate DCC on three rails. In fact, it is even easier! Instead of worrying about the polarity of the positive and negative rails when going through a reversing loop, simply connect one output of the DCC system to your center rail, and the other to the outside rails. My layout is wired to operate both DCC at one time, and DCS, TMCC, Legacy, at another, BUT NOT AT THE SAME TIME!!! It is important to not try to interoperate both of these categories of command systems at once since the DCC signal will damage any engine that does not have DCC electronics for the above reasons. I am currently running two MTH engines in DCC mode on my layout behind my computer. Most of the control environment is the same and you overcome many "quirks" of DCS mode operation. Any future upgrades will be either to MTH protosound 3 w/ dcc, or Soundtraxx Tsunami 2. This way, I can move away from a proprietary command system which most likely will perish along with the parent company, and to an accepted operating standard that 99% of model railroad manufacturers accept and produce.
Why do you (at least in my own experience in both scales) not see folks in, say, HO scale for example, absolutely fretting that XXX brand decoder blew up or brand YYY is going out of business? Because they can get a new decoder "cheap" (even one with sound significantly better than is available in O gauge) and almost any compatible decoder will work in any engine with enough room. I am cringing at the cost of a PS3 steam upgrade kit in my adjacent window on my computer. I could get a wonderful and easy to install sound decoder with great sound for about $100, whereas the protosound 3 kit is more than double. But, when one wants a specific sound file, one will pay I guess.
All in all, yes, DCS does do what DCC does in a better way. However, DCC is a standard, and DCS may or may not be produced in the coming years. I do encourage anyone interested in DCC to do a simple google search, watch an introductory video on Youtube, or even search on the forum for other people running DCC on three rail layouts (there are others besides me.)
"OK, so now what??" At least for me, it is not bluetooth, it is not battery power, it is not some experimental and, again, proprietary control system. It is DCC; something that will continue to evolve and progress due to the significant amount of people that have devoted a collective hundreds of millions of dollars to it. It isn't going away anytime soon, and neither am I. It seems like a match made in train heaven.