DSO files are the compiled Blockland scripts. A large portion of the game's code is written in torquescript, and that torquescript is encrypted in the form of the DSO files, which is important for two reasons.
1: The compiled DSO scripts have higher level access to certain classes than non-compiled scripts (.cs files).
2: The encryption deters modification of certain game features, like the authentication system. As I mentioned above, some people have figured out how to read and produce Blockland DSO files.