For Anti Aliasing the engine uses the settings of you video card, so I would check the d3d-settings there.
If models appear too sharp in the distance, maybe they don´t have mipmaps. You can check this, if you load the models in MED:
Edit Menue >> Manage Skins, click on a skin, now the skin editor should display some information: size, color depth and - if they exist - mipmaps.
If there are no mipmaps you should create them, by clicking on "Skin Settings" then "Texture Format" and check the mipmaps check box. Don´t forget to save the model.
If nothing helps, maybe post a screenshot ...
