Just wondering. It is floating above the displacement and it is larger than normal and some of the grass has a black outline as you can see by the picture.

The only thing I can think of is the fact that I dont have a sky, or light_environment set but I dont see how that would have any effect on the displacement grass.

Any thoughts would be great.

i think thats a skybox-texture, made for scale 1/16.

there should be other ones which are made for the use in the actual level, not the skybox.

don't know which ones, sorry :/
maybe a mapper can point one out for you.

Pretty much what Pedroleum said. The grass you're using there is a skybox texture. Those little sprites are trees (or in this case, baby trees! ;) ). You'll want to try to use a different texture for the grass.

Those are the skybox sprites, but I don't think that's the problem. That's also one of the HL2 grass textures, which none of the 3d skybox textures with the tree sprites use.

You need to extract detail.vbsp from your dod:s .gcf using gcfscape, and put it in your .../day of defeat source/dod folder.
Once you've done that, just make sure you don't use a grass texture with 'skybox' in the name, and you should get the grass sprites appearing normally.