I tried to save everything and reopen. I still had no luck. I did some more research and testing. I believe I have found the answer. Originally, I was putting all my content into a folder in my doc. I found out where you need to actually put your content. Under UDK/UDKGame/Content/Maps/ Make a new folder here with your…
Oh of course sourcefiles except .uc and .fla files can be placed outside the udk directory structure but imported content must be placed somewhere inside the content folder. Anyway problem is fixed :) all the best for you and your project.
Spectre--you need to save the packages anywhere within the CONTENT directory of the UDK subdirectory. Otherwise they won't work in game and will spit out warnings when you try and load the map and such.