Well as far as I know, most of the textures can be upscaled or even replaced by something completely different, like the magic textures or the model textures. But some textures such as this one that you are having problem with, or some textures in the highway minigame or the opening screen title, if you create a .tex and compile them into the lgp, then the game will only use the original area, so upscaling it will not work.
But I am sure that using it as an external texture in mod path works. For example like the opening screen with the buster sword, if you upscale it and put it into the lgp it wont work. But put it in the mod path as a png works.
It might a problem with window.bin, but I am not sure. But you should try, perhaps you could find a solution there. Otherwise, consider converting to the original pc version.