Thanks for your interest! I have also been toying around with plans for doing a GL font API using this method, including a way to easily create a font from any PostScript font, but I have no idea when (or eve if) I will find the time to do it. My daytime job takes most of my programming focus right now, so I can't promise anything.
The software you need to create textures from your own anti-aliased images is on the front page. Here's the link for clarity:
http://www.itn.liu.se/~stegu/aadist/texture_creation.zip
I would say that 12 pixels is too small to make nice letters, but the exact size you need depends on how detailed the glyphs are (serif or sans-serif, hairlines or thick strokes) and how accurately you want them rendered. You could try a few sizes. Quality can be traded against texture size. Corners will be rounded off somewhat, and very thin features will disappear or render incorrectly. As I said, it is probably best to just try it out. 32 pixels would probably be OK for a fonts with simple shapes. An italic serif typeface would require more.
Note that my texture creation software is a script for Octave or Matlab, i.e. this is "research grade" software, and it is not very user friendly. You need some Matlab-fu to use it. Most of my colleagues in image processing and computer graphics research are very familiar with Matlab, and this is how we usually share code to test new algorithms. When (if) I find the time to do that font system I mentioned above, the texture creation might be written as a standalone binary or at least a more self-contained Octave script, but for now, you will have to either use Matlab (expensive but good) or Octave (a free, GPL alternative that does the job but is less polished), or use my C code in the file "edtaa2func.c" and roll your own stand-alone program.
Sorry I can't be of any more help here, but have a look at the archive in the link above and see whether you can make anything out of it. If that code does not help you, I am sorry to say that I can't really help you much more. There's definitely a high threshold to doing this, and there is still a long way to go before it becomes easy. Green's texture method is still not used in most games, even though he presented it in 2007 and it was implemented in Team Fortress Classic by Valve Software.
Good luck, and please let me know if you have further questions! I don't have the time to help you with the big picture, but I would be glad to help with smaller things like understanding details of my code and clarifying my documentation somewhat.
