maybe progressive jpegs? try tgas - also make sure to set the four skins as .texture1, .texture2, .texture3 and .texture4
Well, I'm stumped - it seems the clunky MD2 export script for Blender is broken. I did some research on it, just yesterday they released a new version update for Blender with a new MD2 export script, and it still doesn't work right, the model in-game has way too much light and brightness.
I looked at the discussion in Blender forums on the updated MD2 script, apparently I'm not the only one having this issue, the new release was supposed to fix it - I saw the Python code but have no knowledge or skill whatsoever in programming in Python, so I can't fix it.
As for "set the four skins..." the script doesn't even have that feature, it gives only three options: one for the desired MD2 output filename, one for the animation file, and one for a texture path.
This python script for Blender is clearly not working for UFO: AI and is far beyond my expertise to fix.
Migel got the texture to display right on the earlier versions I posted that simply had the wrong scale and position.
@Migel: If you're reading this, would you please explain how you fixed the MD2 texture? What software tool did you use and how did you do it? I obviously can't get it to work from Blender, tried for hours, and of all the zillions of other MD2 tools out there I have no idea which one could convert it or fix it.
I was able to import the MD2 into MisFit Model 3d, another modeling program on SourceForge, but I can't figure out how to fix the texture within it.