Wish I had remembered this post. Ralzar and I spent a couple of frustrating hours tonight trying to work out why the images he was sending me looked like complete crap in my game. Eventually figured out that I had texture compression switched on. Not that I realised, it was just the default setting. The files were multiples of 4 in resolution (since KoW made that really clear in the Sitrus thread) and less than 2k in size at 44x40 px.
Two questions arise from my experience tonight... 1) Can this default to false, or is it really important for some mods even on good spec PCs? 2) Can it ignore small files and only apply compression above a threshold maybe?
In the long run it's not a concern for me, as these images will be packaged in a dfmod and I guess I can configure them in the unity inspector to be compressed or not?