Select your material and in the top toolbar of the material editor you will see a checkerboard button with a yellow circle in the corner. It's grayed out if the material or a bitmap isn't selected. Click to "Show Standard Map in Viewport". Also go into your diffuse bitmap node and set alpha source to none.
Next time please post your technical questions here http://www.polycount.com/forum/forumdisplay.php?f=43 For your question: Try to exit sub-object mode and apply the material then. Or select all faces and apply the material.