Display Suite ignores hook_preprocess_node()
Display Suite does indeed hijack the node rendering to a point where the default preprocess functions may not be used.

The module comes with a set of its own preprocess functions that are documented in ds.api.php. 

In this case, hook_ds_pre_render_alter() can be used instead of the hook_preprocess_node() to modify the output via the complete render array. Also, the $entity object is available with all values.