I know it's large, but it's used by many meshes (parts only used on a specific mesh) - might be reason? And yes, tried making material as well. What do you mean, what kind of file is it.. ? How do I check that ?
This could be an LoD/MipMap issue. The same happens if you change the LODGroup of some UT3 stock textures from cooked packages.
You are always talking about the whole package so I guess you don't have just the texture file on its own on your HD? Export the files separately from the UT2k4 package and then reimport them to UDK.