512 skins are quicker to download too. I don't think it's about the hosting bandwidth, it is about everyone downloading skins while online too. Some tremendous lag can be caused from even downloading a batch of 512 skins from LFSW. If we had loads of 1024, it wouldn't be fast, and I am guessing quite problematic for people with slower connections and/or just unstable connections. The 512 download is fairly quick, but not as fast as you think it could be. 1024 would slow it down, I am sure of it. Plus, your 1024 skin would HAVE to be compressed by LFSW, no doubt. Because they are in excess of 300-400kb in size on average, and there would have to be some filesize cap for that. There have been nearly 1mb 1024 sized skins, and there is no way LFSW would support that. And as we've seen, the LFS sites are not so fond of high bandwidth. (Well LFS.net and LFSW are hosted on 2 different boxes and locations).
So, all I can say is what the devs have already said. It is a test with the 512 for now, and if it seems ok, they might consider using higher res. I still think 512 is nothing to complain about while online anyways. You get a sense of what their skin looks like, and it adds to the racing atmosphere. I could care less if their skins were higher quality. I'd rather manually go download high quality skins of my choosing.