Sorry, should have provided more details.
DTX5 = BC3/DTX5
Image>scale image>and change the image size to 512x512 = correct
As well as the quality, do I leave it at cubic? = correct
If so then what about the X and Y resolution do I leave them alone? = yes
Note: the size of the graphic doesn't matter where the 'projection' of the skin onto the model is concerned. The proportions of the image have to be kept at the same ratio.