I believe what you're experiencing is called "mach banding." It occurs when there is a slight change in color over a large area. You end up with bands of different colors instead of a smooth gradiation. It occurs because there aren't enough bits per pixel for color. SGI would use demonstrations like this to demonstrate why you need their 32-bits-per-pixel color (12 bots per RGB color) vs. Sun's 24-bits-per-pixel (8 bits per color).
Make sure your display is set to the maximum bits-per-pixel that will support Java 3D. Also make sure your texture is 24-bit and isn't being converted somewhere between the image file and when it ends up as a texture. Also, make sure the texture isn't overly compressed. I believe most of there ideas were already mentioned.
Other than that, you may be stuck. If you get a graphics card with more memory, it will have display modes that support more colors. My GeForce3 supports 32-bit color, even at 1600x1200.
-Paul
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