As far as I see, you are using only a small part of your 1024x1024 texture... that
#s why in the second pic everything is so blurry - there simply are very few pixels of the pic in the view.

http://www.puppenheim.org/
http://www.wuerfels-welt.de
Old Game Tutorial: http://www.puppenheim.org/MITutorial.zip
Free Game Editor: http://puppenheim.org/AlienalsWeihnachtsmann.zip
http://www.puppenheim.org/blender_starting_main_settings.txt