There is no perfect solution in any 3D game to the issue of texture stretching. Textures also need to be a power of 2 to be displayed properly in 3D. There will always be some part of your 3D texture that suffers from stretching when mapped to the model. Using multiple textures can help, but then the overhead is increased too.
In LFS, the parts of most skins that suffer from more extreme stretching include areas near the nose and tail, around bumpers for example, and there can be vertical stretching as well; side skirts being a prime example. The 1280 x 1024 formula works well for the overall skin, and individual areas need special attention after that.
You may also notice some blurring where a straight line or block of colour spans several polygons, the windscreen strip is an example of this where you can see blurring even after "curving" the decal or artwork to match the basic form of the area it covers. If you place a straight decal on the windshield strip (GTR cars) and look at it from several angles it isn't hard to see the effect that the polygons have on the artwork.