This has always been the way BleST has worked. Materials are defined in one place or the other. If there is a conflict or more paths used, the materials will break. The path set in BleST will take priority over the $cdmaterials Statement. Only use one or the other.

What version of Blender are you using? And like both xDShot and I have told you, delete the path to the Materials in BleST and let your $cdmaterials statement handle the Materials path.

What update??? Are you using the BleST beta version for Blender 2.80 in 2.79 or the BleST version for 2.79 in Blender 2.80. They not going to work if you are.

If you are using Blender 2.79 and click the check for update button, then it may have downloaded the 2.80 version. Roll BleST back to the last version for the Blender version you're using. If you're using Blender 2.80, make sure you have the latest Beta of BleST.

Maybe a picture or 2 of the problem might help... Textures aren't applied by Source tools, it only writes materials to the model. It's up to you to define where those materials (the VMTs) are located in the QC with the $CDMaterials statement.

Check to see if there is a path value in the Materials Box of Source Tools, if your materials (VMTs) aren't in that path on spawn, they are going to be missing.

Delete the path from the box, re-export and recompile and let your $cdmaterials statement tell the model where the VMTs are.

So, I made a change to your armature, shrinking the Bone bone and pulling the base even with the 2 upper leg bones and I set the roll of the leg bones to 0. The shrinking and moving of the Bone bone was the correct thing to do, setting the roll to 0 was wrong, because you did the walk sequence with the roll set. This is what I ended up with after export.
https://i.imgur.com/oVcmvkr.gif

Setting the rolls back to what they were,

this is what I get after the export.

https://i.imgur.com/SGVHxqq.gif

(Which I believe is what you're looking for.)

https://i.imgur.com/eM9rrap.gif

https://i.imgur.com/Pj5SlbK.png

If you want my edited blend file so you can compare it to yours, grab it here

https://www.dropbox.com/s/ld21y6kgy7d5okx/Melmetal-WALK_pj.blend?dl=0

Let me know if you got it or don't want it so I can delete it from my dorpbox.

So the reason why the armature is in a pose, but the mesh isn't is that the I had set the pose to rest position before exporting, BleST found the mesh in TPose, but the active animation says the bones need to be in that position and this combination is the ref position for the model.

Both upper leg bone have bone roll in them Leg on the right 84d and the leg on the right -81d (I think these should be 0) like all the others which are set to 0 roll (except the one that has that ball attached to it at the head, it's set to 0.000014d and should be set to 0 as well)

So I created a ref animation in its rest position and made sure that was the active animation on export.
https://i.imgur.com/ooQAX87.png

(I'm getting closer, this is the result of the reimported SMD. )
https://i.imgur.com/hDsBvvc.png

But there is still a problem. Note the way the bones are shrunk and look at the position and length of your root bone and how the leg bone connect to it and are rotated, also look at the position and rotation of the lower leg bones (still investigating)

After applying the Location, Rotation and Scale to the objects so they are all the same, I find that your animation starts on frame 0, when I export the smd again, I end up with the pose coming back into blender like this.

The armature is in a pose but the mesh is in a t-pose. I have to investigate this, this is not right.

https://i.imgur.com/MkPXchw.png

Looking at your blend file the first thing I find is that your armature and your mesh are scaled differently and the rotations are different as well.

https://i.imgur.com/BcOC2kc.gif

This explains why I get an animation like this when I bring the exported smd and animation back into blender.

https://i.imgur.com/B3kd4mO.gif

See the picture. Sometimes the engine matters...
https://i.imgur.com/YrW6bMz.png

What game/software are you exporting this for, BleST is not setup in your Blend file?