I'm not entirely what you're nodes are, since I've never really used ShaderFX... But I'm thinking it's either you file type, or your gamma settings on your texture import. If that's not it, in your shader: you might need to do a clamp before the lerp... You can either clamp 0 to 1, or use saturate. if that doesn't help...…
So it looks like all you are only multiplying the blend texture to the vertex color. Here is an example using UDK http://eat3d.com/free/vertex_painting After multiplying the blend map with the vertex color, he adds the vertex color back in (so parts that should be blended 100% are) then a power node to adjust the contrast…