Really the 128x128 size goes better with images that are simpler and perhaps hold fewer colours/details. It has a lower pixel count; meaning less sharpness and less potential.
If you wish, I will buy you a 512 Head Tex. item. Because I like to think I am nice. ^^
There are plenty of programs you can use for texturing and art alike. Gimp is one of the free software that is available.
Compiled list of Art Programs for Texturing
I use Mudbox for mapping and PhotoShop for painting.
Mudbox is a free (for students) 3d modeling/painting program.
PhotoShop is one of the more powerful image editing and painting programs available, however if you are after something which isn't as complex but still gets the job done, try something like
Krita or
Artweaver
Having said all that, the software you choose to use won't create you better art - that's up to your practice and commitment.