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

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.