HI Steve,
Yes, for best results in FS2004 you should have all resolutions installed. The lower resolutions will improve the more distant terrain. and the terrain engine will sort it all out properly.
The higher the resolution the shorter the visual distance. This is hard-coded into the terrain engine for performance purposes, so having all resolution installed will ensure a gradual transition out to the horizon without any abrupt resolution boundaries which can cause display oddities.
Thanks
jt.fsg