The terrain texture does end up higher resolution, but it is still copying from a source image that is 256x256, so the added resolution isn't very noticeable. For now, I would suggest turning terrain texture resolutions back to default if you plan on doing most flights over photo scenery areas, as this will load faster and use less memory.
It may be possible to use the SDK to compile a higher resolution image into the source bgl to support the new resolutions, but I'm not familiar enough with the tools side to be sure. We do have some ideas for how we might address it in the engine, to potentially support existing content at higher resolutions, but we haven't had a chance to look into this in detail yet, as it was reported fairly recently.
A contributory factor may be how the LOD radius setting is working against the LOD that the original photoscenery was compiled for? You can see this by using Tmfviewer in the environment part of the sdk.
I've tried the (now aged) Horizon Generation X photoscenery for the uk in P3D4. It works, but not as well as I'd expected.
This is partly because the scenery itself comes in two folders, 1.2m photo and 2.4m. Tmfviewer shows the 1.2m photoscenery to have been compiled at LOD15. The 2.3m photoscenery was compiled at LODs 4-14.
LOD radius was set to maximum in the sim. The maximum LOD radius that is allowed by P3D4 is 6.5. I tried setting it higher in the cfg but on starting the sim it reset it back to 6.5.
With both folders active in the scenery library I get photoscenery out to the horizon, but not clear and crisp, just like in previous more LOD radius restricted sims. The sim displays 1.2m scenery very close to the user aircraft, and the 2.4m scenery everywhere else. This approach was probably taken to achieve a balance between visuals and VAS use, back when we had to worry about that a lot more!?
I then tried deactivating the 2.4m scenery folder to see if the sim would use the 1.2m out to the horizon, but it doesn't. I only get that highest resolution photoscenery in a small bubble around my aircraft, the rest is default landclass textures.
I then created a custom one layer higher resolution 0.6m photoscenery compiled at LOD 4-16. This clearly worked much better and was clearer and crisper as far as I could see. I could not see any appreciable difference to it with 'high resolution ground textures' checked or unchecked. (caution: subjective opinion and my eyesight isn't the greatest!)
Legacy photoscenery may either have to be 'put up with' or reworked entirely to get a better representation within P3D4, if there are no amends that can be made within the sim by LM to assist.
What we would benefit from though please, if its possible, is to be able to display legacy photoscenery compiled to a higher LOD only to a much greater distance :)