And what? Having the grip be so big causes the whole thing to be fuzzier when it's shrunk!? WHAT IS THAT I DON'T EVEN-
Does the texture have to be 512 or can I stick with a larger size? (1024?)
It's not so much that the grip being big causes everything else to be fuzzier directly; it's more that a) the blade shell being so small causes the detail on the blade to look fuzzy, b) the hilt shell doesn't need to be that big, doesn't really get anything out of it since the detail can't really be seen anyway, especially when it's being gripped, and thus c) a lot of the space on that texture that is currently "spent" on something small would be better spent on something big.
Considering that most of the weapons in TL, and even apparently a lot of the weapons in TL2, aren't even 512x512 (I believe most of them are 256x256 or 256x512), making it bigger would not be recommended. I mean, yes, technically you can give it a 1024 texture and call it a day, and since it's just a mod it wouldn't be a big deal, but that's still kinda the lazy way out.
What you might try to do is learn how to lay out UVs for a rectangular texture. This can be a bit confusing, and ordinarily I think it's something you'd want to learn after you'd gotten comfortable with UVing, but you might try it out here if you're up for it.
Basically, instead of laying out the UVs in the "0 to 1" space, you lay it out in 0 to 1 on the U axis, and +1 to -1 on the V axis (this is if you want it vertical. If you wanted it to be a horizontally rectangular texture, you'd obviously do 0 to 1 on V, +1 to -1 on U). Essentially instead of fitting them within just the one middle square, they would take up two squares.
Then, once everything's nice and laid out, you grab all the shells, scale them by 50% in the longer direction, and then
put them into the regular 0-1 space.
This sort of thing tends to work well for things that have very lengthy sections that can't be cut up cleanly or easily, like swords, or pillars, or tall buildings, or things like that. Something to consider.