Well, last night Haxley got me on Steam to help him fix this isssue... and after a night of sleep I found the solution.
The issue was that the models that Haxley is using are too "High-poly" for TL2 to handle on the fly...
After some work on blender I reduced the poly-count to around the half, so the original mesh file of 1.4 MB got reduced to around 800 KB. And that fixed the issue, at least in the GUTS test room, maybe for it to work fine in game the file size may have to be a bit lower, since vanilla armor meshes are around 200 KB.