Hi,
I've just updated to 0.8.5 (Mac OSX 10.7.3), built a 1.4m poly object from 18 images without issue. Images are TIFF at about 52mb each.
When I try to build a texture at any resolution (size), using 'Generic' I get a super-low res mosaic effect on the mesh. In v 0.8.4 this works just fine.
Thanks
Mondo