From: Harlow Vaniva
I'm sure Chosen Few will be by shortly to help, but I just thought I'd throw that in there in case that is the cause.
Hath my fame preceded me?
Honor, you've got two main problems going on:
First, Harlow's right (and not just in predicting that I would reply). You've got too many spans. If I'm counting right, your surface is 32x32. Generally, 16x16 is as high as you want to go. Otherwise, the resulting in-world mesh won't be able to reproduce all the detail of the NURBS source model. Remember, every (non-oblong) sculpty is 32x32 quads in-world.
If your surface were totally flat, then 32 spans would translate perfectly to 32 quads. But as soon as you bend the surface even the slightest amount, spans can no longer tesselate directly to quads. NURBS are based on curves, after all, and it takes an awful lot of straight-edged polygons to simulate a curve.
Generally speaking, for best results with sculpties keep the span to quad ratio at 1:2. For a square sculpty, that means 16x16 spans will translate well to 32x32 quads. For oblongs, go with 32x8 spans for 64x16 quads, and 64x4 spans for 128x8 quads.
Second, keep in mind that LOD rolls off over distance. From close up, a square sculpty is 32x32 quads, but move your camera out a bit, and drops to 16x16 rather quickly. Go out further, and it drops to 6x6. (If you're wondering why 6x6 instead of 8x8, the answer is it used to be 8x8, which was more logical. But they cut it to 6x6 to reduce rendering lag. 6x6 is 36 total quads, which is a reduction of almost half, compared to the 64 quads of 8x8. The powers that be at LL figured distant objects are going to look like lumps no matter what, so there was very little to lose and a lot to gain by nearly halving the poly count of those objects you can hardly see anyway.)
When making sculpties, it's super important to think about where the reduction points are going to be. If you want a particular feature to be more LOD-proof, then pile more vertices in that area. Features that won't be affected by culling should be given as few vertices as possible.
Right now, you've got all your isoparms evenly spaced. That's not really a good idea. Notice you've got something like 9 or 10 spans in the upper area of the model, above where the protrusions begin. For best LOD-proofing, you should triple up the isoparms at each corner. The bevel should be just a single span. The corner should be very compact spans. The flat part should be one large span, and then the next corner should be two small ones again.
Take a look at the following image. On the left is your original. On the right is a quick sketch I made in of where the isoparms would best be placed. Notice there are three at every corner, and none in between the corners. Not only does this make for much sharper definition in the source model, it also helps ensure that the corners won't disappear when the camera moves away.

Note, I did the sketch without regard to the total number of spans, just to illustrate the point of how corners are best made. I would not recommend trying to make a shape as complex as yours out of just one sculpty. Technically, it CAN be done, but it won't hold up well against LOD culling, so it's not a great idea.
To summarize, use less spans, pay careful attention to where you put your isoparms, and you'll be fine.