Try Jakg's '
How to Make LFS look Better' guide.
You can have a look through the comments to see if a problem applies to your specific case.
From the way it sounds you may have a driver issue, or you mightn't be applying enough anisotropic filtering. The high res textures really benefit from the maximum allowed, 16x or so. Anything less and the textures will start to play up over a certain distance, which may be giving you that jagged effect.
The other thing to check is which resolution you're running LFS in. Higher resolutions of course give a more defined, less pixelated look. You shouldn't need too much AA at extreme high resolutions. 4x is good enough for most purposes.