Its always been much more tricky than it should be to make nice lookin roads. (Even if are able to comprehend the layers system *and* it actually works for a change.
Now in 0.65.8 you can use the automated road creator in the f10 world editor to paint roads in - each with their own little pavement/sidewalk - and the game works out the junctions, crossroads and etc for you.
Heres a vid of it in action :
http://youtu.be/wvDPIR38x3A
In 0.65.8, its hardcoded to use texture map 14 and the height & width of the sidewalk is fixed, but i'll make those more configurable later.