That's because you're applying Smart Materials with SHIFT+C+LMB. A custom material is a Material, not a Smart Material. :smile: Add a regular Material, select it from the Custom category, and then assign it in 3DO via C+LMB.
I've seen people ask this question already but I have a deeper problem ( might be a simple fix not sure ). I go to create a custom material and everything goes as planed (so far). All the preview images are created along with psb's and xml file. NOW when I do my shift+c , click add a material, the custom section at the top…