Heh - those are indeed the normal un-improved textures on an unimproved model.

That's exactly how it appears in retail - no new model or even Lightspeeds texture versions.
Anyway, it sounds like it
is just missing the -jpgtga command line flag, so manually enter that or check the first checkbox under the graphical improvements dropdown list (just underneath where you're manually entering them) in the FSO launcher.
Just in case you're not sure what I'm talking about - the launcher was placed in your Freespace install directory when you use the FSO 3.6.7 installer and allows you to manually enter command lines, or check boxes next to the more common ones (such as -jpgtga, -glow, -shine etc) as well as many other features. So if you're not using it as is,.......well, use it.
