So, I made a quick work-around for my particular situation. Basically, I embed the 32x32 file (to keep the swf size super low) and then run it through a loop to make it 1024x1024 when creating the BitmapMaterial. It looks perfect but sadly uses a lot more RAM in the scene. It's a shame... but it'll have to do for now!
Is this a Flash thing, like a scaling issue or something? Because it's just nonsense to have next gen texture sizes for a low spec model to look good in a browser... UVs are UVs at the end of the day.
