Well it turns out there were a few factors in the blocky image:
Now the patch is installed, I am able to run at 225% rendering. 8x AA helps too. But there was still something not quite right. The shadows of the trees on the track looked bad still, but the overall image was very close now.
Finally I had another play with changing the custom resolution in SteamVR settings - still learning about all this, and playing with this in native Steam games had no effect for me, but with LFS via OpenVR, it does. This can be seen by the render target resolution in the view options going up with the increase. So I found I could go up to 200% with my Geforce 780 before things started going wrong.
With all this set, I am pleased to report, the image is really good now. Now things are clear, I am able to really see what stereo mirrors does for the realism, and for me it's huge - kudos to the devs for being the only sim that has this.
Personally I am not too bothered about licensed tracks and cars for now. In fact, I specifically want to learn in road cars. I can't relate to a ton of down force or cars that do 80mph in second gear.
For this reason, having played Project Cars, Raceroom and LFS, LFS is the best, especially for VR. So I wish the devs luck in reviving the momentum of the title!