I learned something today! For certain definitions of "learned," that is.
Today in FashCon Cafe, someone was asking for confirmation that textures are resized to 512 x 512 when worn as clothing. Now, I've heard this is the case, but I couldn't confirm it, and neither could anyone else in the chat. Since I was tired of texturing my store and had a few moments, I decided to go ahead and test it, just to be sure.
I made a black texture, 1024 x 1024, with a single white pixel. When I applied this texture to a box, the white pixel was there and was white. When I wore the texture as a shirt, the pixel was there, but it was now gray. I was standing in front of about four bright lights at the time, canceling out all the environmental shadowing, so this wasn't a shadow issue.
So, if you were ever wondering about this issue: yes, clothing textures really are resized to 512 x 512 when baked onto the avatar.