I create my materials in Max, export to FBX and check "import materials" in UDK and don't worry about it. With the wallworm tool you get something similar for source so I would suggest anyone working with source use it, but even then UDK still makes it easier in almost every way. If I need to do something more complex in…
The SMD import/export plug-in only works in Max 9 through 2011. You can render a filled in map from Max, so you don't have to fill it in with MSPaint. Change the mode to "solid", and un-check any edges.