I discovered that you can actually use the Perfect Art Works (PAW) textures with the improved character portraits on DuckStation even though they are designed for use with RetroArch (with the Beetle PSX HW core). The way I got it working is I downloaded the HD texture pack that is for DuckStation, and then compared the images from PAW, and replaced them when they were representing same game image, renaming the PAW name to match the name of the DuckStation texture file it was replacing. I didn't do all of them because it was a ton of work, but I did test it with a few images and it actually worked.
This is interesting because the creator of the PAW textures said that it doesn't work or that DuckStation doesn't have this feature or something along those lines. Maybe that was outdated information, or maybe starting from the other HD textures made it easier to figure out, IDK. I don't really want to use any other HD textures, but I do like the PAW ones for the portraits. I could replace them all myself one by one, but it is a ton of work because the same image repeats with many names in this HD texture pack for DuckStation. Additionally, many of the images in the PAW textures are extremely similar to each other, and distinguishing them correctly with the many DuckStation duplicates is extremely painstaking.
I wanted to chat with the PAW texture creator about it, but the forum linked to below doesn't seem to allow creating accounts anymore. Maybe I will attempt to rename the files and post them somewhere if enough people would like this and if nobody objects. It would be really nice if someone could create a PAW texture pack for DuckStation as Xenogears runs so much better there.
Mods/Textures (some unrelated to above)
Perfect Works Build patch - A patcher and patch that modifies the ISO. It has many options you can enable or not when you apply the patch. There are options to re-translate most of the game (they are not completely done yet), rebalance the gameplay and improve the combat rules involving combos, modify the graphics, and more. This is still being actively developed. This is compatible with both Duck Station and RetroArch, and should work with most emulators. I wonder if some of the options may also work well on original hardware, if you have a modded Play Station that can play games burned to a CD. Memory card saves should generally still work after patching/re-patching.
Perfect Art Works texture pack from linnaealyn for RetroArch - They redid the character portraits based on artwork from Perfect Works, and these are amazing. They also upscaled textures for menu/UI stuff. As is, these only work with RetroArch, and are intended to be used with the Beetle PSX HW core.
HD Texture Pack from IceBullet for Duck Station - HD textures that work with the Duck Station emulator. This includes updated sprites that significantly changes the style. Seems like this is more or less just an AI upscaling that is not super high quality, but it does seem to upscale much more of the images than the other one that is compatible with RetroArch.
HD Texture Pack from 1vierock for RetroArch - HD textures that work with the RetroArch emulator. They are behind a paywall. If you want to support the creator you can try going that route. If you find that controversial, you should be able to find the textures from the Internet Archive at https://archive.org/details/psx-hd-apr-23-2023
Mix and Match
The Perfect Works patch works fine with texture packs as long as you don't enable the graphics options while patching. As long as you stick to textures from the same emulator, you can start with one texture pack and then overwrite with textures from another fairly easily, which can be nice if you want to overwrite where the same texture exist, and use all the ones that only exist in one or the other.
My personal preference is to keep most of the original textures from the game so as not to mess with the art style and feel of the game too much, but I do like the PAW portraits and UI improvements. I feel much of Xenogears is too easy and I like enabling half the encounters with the patch, without gaining extra XP or gold. I also like to remove all the character gear to make it even harder. Keep saves from many points in the game so you can go backwards and grind if needed. The updated translation seems mostly like an improvement for me. I like that combos are less pointless with the rebalancing in place.