I use the script way, but you need to match the name exactly and the material needs to be in the startup folder, or it won't be able to find it. Nice with the video :)
My AVG is detecting some kind of injection script on www.shogun3d.com. Could be false alarm. http://myleslambert.co.uk/ http://www.lukasvandaele.net/ http://www.pixel-masher.com/
I haven't used it, but there are a couple scripts around for mirror-modeling morph targets, if that helps. http://www.scriptspot.com/download.asp?ID=2694&inf=1
There was a script posted here a while back that did that, but I'm afraid it was maya. Chameleon? edit: http://boards.polycount.net/showthread.php?p=828426 http://decalcreator.inlandstudios.com/
Is that your whole file? The compiler error says line 57. Are the keywords you are using elsewhere in the script available in arbvp1(as opposed to 2, or 3)?