Quality Settings, Sprites and Mipmaps

I'm making a 2D game with Sprites. I'd like to support iPad1, which doesn't have enough memory to support the retina assets i have been provided with. I have tried setting sprite textures to "advanced" and forcing generate mipmaps (so that i can use the quality settings texture resolution) but this has resulted in an oddly warped sprite texture.

Is there a 2D way for QualitySettings to halve the sprite textures in memory or do I need to generate a whole new set of assets for my game?

Thanks