Your 256x256 matrix tile is not pixels, its db units,
each matrix tile can only hold one part of your texture file. 128*128 is not really big enough and will look blocky.
so if you create your matrix with
MAKE MATRIX 1,2000,2000,50,50
you get a matrix 2000 units wide by 2000 units high split up into 2500 tiles (50X50). Each tile will be 2000/50 units wide = 40
each of these 2500 tiles can have 1 texture from your 'prepared' texture which is 1 image split up into many images.
so if your prepared texture is an image with 4 textures (one in each corner) you can tile your matrix with a mixture of any of those four images
Another dependecy is what res you are running in. Run at 640X480 and of course it will look blocky. Run at 800*600 or 1024*768 and it will look much better.
Boo!