I wrote the advice below about editing mips, and then had a new thought. My ideas are based on the logic that if you could see enough resolution up close, you will have a nice appearing object. That would be easiest to be sure of it you just remove the mips from your image as a first experiment. This should force fs to display whatever "full" resolution is. If you do this and it looks good, then the trick will be to force fs to display this version of the texture at the distance you show in the screen shot. That's when you may find it helpful to identifiy which mip is really displaying, and force fs to use a higher resolution mip instead.
If, on the other hand, you eliminate the mip maps and still find the image looks like you show up close, then its of no value trying to mess with mips. Its time to create a higher resolution source image.
Editting mips:___________________________________________________
Do you have a graphics software? Like paint shop pro? PHotoshop? Gimp?
My idea is to use the graphics software to do an experiment. I'm not in front of image tool right now, but if it provides the ability to edit a mip, then do so using your graphics software, and re-save with something added to the mip that will display in fs. Like a color shade. Remember this is just an experiment.
If image tool doesn't allow you to edit a mip, Martin Wright has provided a graphics utility that does permit idividual mips to be edited.
http://www.btinternet.com/~mnwright/ Check out DXTbmp, I think that one permitted mips editing.
Once you figure out how to edit a mip, I would suggest you cast a unique color on each mip. So, the full image is your image, your first mip is colored red, your second yellow, etc.
Recompile using the test material. Now you get to see what mips you are looking at. One possibility is that you are never seeing the full image, which is why it looks crappy close up. You'll know this with the experimental mips, cuz it will remain red, no matter how close you get to it.