Normally the quality of the texture is down to what format the picture is in before you use a tool.
Use 24-bit targa files (*.tga) for textures without transparency or 32-bit targa files for textures with transparency (or any opacitiy).
Then, use PAATool (its the best converter out there), and then:
For textures with no transparency: set it to RGBA 5:5:5:1
For textures with any transparency: set it to RGBA 4:4:4:4