Nope, 526x526 texturepacks doesn't exist. The resolutions are by binary bits, that is 256 TP followed by 512. And no, it has always been possible, for example Deus Ex games published in 1990s have been improved so much to include modern day shaders. Anyone who thought it was impossible means that they never would have done the necessary knowledge or ability to complete it, and are basically just layman commoners who know nuts about technology. (Lol nuts

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As stated, there's a difference between time and talent and possibility. If it's impossible, it's impossible. Right now it's impossible because, as stated, with the resources and systems implemented by Notch - absolutely no custom content can be generated on an SMP server without needing the player to download additional client content which will further reduce player base unless it is so innovative it becomes a big hit that sufficient people, would bother trying it out.
Actually no, the latest breakthrough is 100TB/s, when someone says MB/s or TB/s without an integer, that means they are giving the transfer rate speed and not any specific amount. Also if it isn't utilised because of cost, why so? Because it has not advanced to a stage at which the price be brought down for it to function cost effectively. Is it possible in the future? Yes, eventually. Does that mean that the price has dropped? Why? Because they find more efficient means to do so.
Anyhow we should end the discussion about this because it's palpable that you don't have the appropriate information on this subject and are covering based on speculation and layman surface analysis.
Lol, yes it is a hobby. As much as I want this to be profesionally run once this patch goes out. Look at how many fail servers are out there with abusive admins and unbalanced gameplay without innovativeness. Oh and in case you didn't know, servers cost money. Right now the server cost is at 100 USD a month for just 40 players and the current RAM is more than sufficient except that we are having disk issues where it lags terribly once we hit over 30 players, and can easily go up to half a thousand for for double that player base (it increases exponentially).
Pretty expensive hobby yes? I don't plan to make a server to fail and dig deep into my pocket to cover the cost, if that's people idea of how they go through their life, lol nothing to say XD.
Oh and as for the discussion about mob difficulty, it is pretty hard when you are level 1. However because of the lack of instances and level scaling systems, it becomes too easy later on, therefore we'd be implementing an instanced dungeon in the upcoming patch if you read the changelogs.