cybereality Did that, no changes. Deleted the .godot folder to check if it was some cache issue, changed the compression changes but no success still.
The weirdest part is that you can see that the texture has been compressed to Lossy, but for some reason its still blurry as you can see on the edges.

Otherwise on the editor, everything is working:

I am going to sleep, so i will continue debugging this tomorrow and create a github repo so everyone can read the code and help me debug this.
Thank you so much for your time and help on this!