Original post for the record:
Is there any way to make it work?!

Wally plays nice with WADs made with a custom palette while TexMex (though it rules) does not. Well... it DOES but the palette file when loaded in first makes the WAD not work with wad2hlwad. But either way, when I load the good WAD with custom palette into Worldcraft the textures look like crap and are all the wrong colours (likely due to the Quake palette???).
When I compile the map and use my palette in the pak it looks fine, so that's good at least. But working with garbage textures is not only fugly but very challenging and annoying.