well, in case anyone else had this problem, here's a (my) solution: although the texture filled the other requirements (right format (pcx, bmp, or tga), sized to a power of 2 (256x256) and being only 8 bit (256 colours)), the dir structure was too long, apparently. It seems like a pretty big error in UnrealED, but I suppose it's just a truncating problem with one line of code somewhere in there. anyhow, I moved the pcx to root and then all was well. hope this can help someone