Okay so I made some progress. I now know what was wrong, every extracted layer has to be edited individually and placed together in a separate folder before palmer will import the PNG's. So now I can successfully import my upscaled/edited pngs with palmer and the modpath textures are exported in 1024x1024 as should be.
The problem I now have is that even choosing magnify only in Waifu2x to upscale the field textures makes a very slight green outline round the separate layers when you zoom in with palmer editor. Is this normal?? Or do I have to tweak some settings in waifu2x?
Anyone? Surely someone must know?