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these two articles helped me a ton with vtfedit quality settings if you haven't already seen them.
Hey there, I'm not at my computer at the moment but if you need more help feel free to shoot me a PM here on tf.tv.
Three things to note about .vtfs:
First off, they will automatically scale to the nearest resolution that's a power of two (2x2, 4x4, 64x64, 512x512, etc.), so if you want to make sure your image isn't stretched/compressed, make sure that the custom vtf you're editing is an exact power of 2. It's okay if there's a lot of blank/transparent space as long as you save it as a .png image file before you convert it to a .vtf (and all of the space was transparent when it was a .png).
Second, in order to preserve quality, you have to make sure that the image file you want to convert to vtf has the "No Level of Detail" option checked in it. I can't remember exactly where you do this, but the option should be somewhere within VTFEdit, assuming that's what you're using.
and finally, you have to have a corresponding .vmt file to go alongside it, but seeing as you already have it in the game, I don't think that's you're issue.
I'd double check my quality options again if I were you, because I ran into an issue similar to yours and found out I had both the quality setting incorrect as well as the incorect image resolution.
Three things to note about .vtfs:
First off, they will automatically scale to the nearest resolution that's a power of two (2x2, 4x4, 64x64, 512x512, etc.), so if you want to make sure your image isn't stretched/compressed, make sure that the custom vtf you're editing is an exact power of 2. It's okay if there's a lot of blank/transparent space as long as you save it as a .png image file before you convert it to a .vtf (and all of the space was transparent when it was a .png).
Second, in order to preserve quality, you have to make sure that the image file you want to convert to vtf has the "No Level of Detail" option checked in it. I can't remember exactly where you do this, but the option should be somewhere within VTFEdit, assuming that's what you're using.
and finally, you have to have a corresponding .vmt file to go alongside it, but seeing as you already have it in the game, I don't think that's you're issue.
I'd double check my quality options again if I were you, because I ran into an issue similar to yours and found out I had both the quality setting incorrect as well as the incorect image resolution.