some odd mip map problem maybe? Ya 1024x1024 textures are a bad idea.
Unrelated:
James: im curious, whats your FSB at? If your duel processing I dont think its possible to get the FSB up high enough to take advantage of DDR 4000. And dont you mean 2x Xeon? Dual Xeon 1gz FSB is mighty impressive.. I must see a pic

You got a vapochill or something?
No offense inteded but I dont think this is a DBP problem. I think those computer specs aren't correct and Its possible that you dont have a card that could support 1024x1024 maps. You can use CPUz to find out what you really have.
Also, DBP is only supposed to support DX 9 at this time. Also any Radeon 9800 pro comes with DX9 on the cd and dx9 is installed automatically in default set up option.
Please dont think that Im being a dick, I just dont want to be on a wild goose chase
[P4 2.8C @ 3.03 with an 866mhz FSB:: MSI Neo-2LS running PAT:: 1gb Mushkin PC-3500 DDR High Perf level 2@ 2,2,2 :: ATI Radeon9800ProAIW :: 120Gb SeagateBarracuda 7,200RPM SATA HD :: Antec Plus1080AMG]