Yes, they work just fine in any modern engine, there might be some obscure engine back from 1997 that doesn't support them, but other than that, they are perfectly acceptable to use.
Yeah weird, maybe if they had some special code to split that up into 2 textures, throw it to the GPU, and then combine it back as one to render? Doesn't seem to make a whole lot of sense, because if you send the GPU a 1024x1280 its going to size it down to 1024x1024, regardless if the engine supports it or not.... weird
doesnt matter unless its height and width are a power 2. For example you could have a 64x256 or a 2048x1024, and in your case a 512x256. I think some other engines do some crazier shit like you could have a 1024x1280 (1280 comes from adding the power of 2 factors together, so in this case 1024 + 256) It never really made…