[Tutorial] How to make a custom decal!

[Statyk]

Okay, so I'm trying to add pictures, I followed your tutorial exactly, but the .mat never came up in the level editor at all. I even put it in the main directory. I went back into the material editor, put settings up to "soliddiffuse" so I could see what the decal would look like and I got this... (See attachment)

What's wrong with the picture. It's a .png like you said... I can't tell what I'm doing wrong. Do I also need a .dds version of the .mat? Because it seems like every .mat in the texture directory has a matching .dds... (Like how sounds have a .ogg and a .snt)