Short answer is, yes, it's just a blurry texture and people's imaginations going crazy.

There are some intriguing secrets in Super Mario 64 that have been discovered, though, stuff that's way more interesting than that dumb sign (although the exact same texture was used in Ocarina of Time, which is worth noting). My favorite discovery is that, through glitching, it's possible to bring MIPS the rabbit into deep water, revealing that there are unique animations for Mario dropping MIPS in water, MIPS sinking, and MIPS landing (if I'm remembering them all correctly), despite that you're never supposed to do such a thing. Check it out:

http://www.youtube.com/watch?v=BFDoT8OENGg

While it's filled with a lot of nonsense and the aforementioned wild imaginations, this is a pretty interesting read on the stuff that actually has hard evidence to back the discoveries:

http://www.sm64.com/misc/Mysteries%20Guide.txt