Sounds like your picking the old png sister files that were created for the material ini files so that they had a preview in the material seletor. I think they are all created on the fly now if the old png files do not exist so they may no longer be needed. I think removing them will allow the previews to reflect changes made to the ini file better incase the png files are no longer being generated, so it might be be wise to remove them to make sure your viewing the most recent material.ini values, but verify that first before removing them. Those png preview files may not be displaying because it doesn't meet the min requirements for textures? For the texture assignment for materials, try picking a image from the Textures folder not the Materials folder. Textures are a property of materials (new?). I think this relationship changed or adjusted somewhere along the way. Might check the rev. history for the details. We have our textures and material in non-default paths so I can't recall if Textures is the default texture folder or not. Good luck boss!
