Okay, there must be something I am missing here. Its 6 AM so long day Treat me nicely.

I create a model, HOW do I get a file to begin texturing it? From other games I thought "oh UV map!" I created one, just filled it up with random colors to get an idea in game what goes where on it. I believe I set up all the files correctly. No texture in game, at all, holding an invisible sword.
Id appreciate any help I can get, thanks guys.

Haha sorry, I am awake now!

Model was imported into blender, edited, and exported.

UV map exported, grabbed it in photoshop and filled it in. Saved as a .dds file.

Went and copied a .material file, edited it to call the dds file. I read that it didnt matter the extension of the file name inside the mat file, so I left it as a .psd

Finally went into guts, created sword, loaded model, I didnt texture overwrite, was that my problem maybe?

Spawned it in game, no physical model, just straight air, and while fighting like an airbender is cool, not what I was aiming for.

Also, thanks for the welcome! Im glad some people are still around for the game, I came into it very late it appears.

Can confirm the texture shows up correctly, as well as the model, in the viewer. In game, invisible. 

HAZAH! I moved the texture files to inside the mod folder, instead of main directory. Everything is there now.

Its sad to hear that modding is down. Not to give anything away, because who knows if it will be completed, but a partner and I are working on a little pack that will add a much needed weapon type in TL2. Ill hopefully post some photos soon.