Why are my materials so pixelated? The textures always come out as squares of texture, it’s not smooth at all. You can see it in the texture of the lower left corner of the bluish picture, on the land; on the red and green picture, on the mountains in general (especially prominent on the right hand side). Also, in the second picture, look at the reflection of the water. It’s totally messed up! What’s going on?
Looks to me like it is the heightmap resolution of the terrains that is creating the pixelation effect. Normally the heightmaps generated internally achieve 16 bit greyscale resolution, however, depending what filtering is used, some effects cause the map to drop to 8 bit - but since it is expecting 16 bit and is sampling for 16 bit this results in a stepped heightmap. I cannot positively confirm that this is what is happening in this case, but that is what it looks like to me. If you want positive confirmation, post me one of the source files and I will tell you exactly where the problem lies and how it can be fixed.
If you want to do that.