Hah! and after all this time i thought there was something wrong with Mod Tool. Ill have to check this out.
For me it is best to create only one texture. If you are importing 3rd party models that use multiple textures then it is best to combine all of the textures onto one sheet. I use a 2048x2048 maximum resolution sheet, and "fit" the textures as best as i can. The size of the sheet will depend on how much room all of the "little' textures take up. True you may lose some resolution, and detail in some areas, but IMO the benefits outweigh the drawbacks. Your model will have to be re-uv mapped to use that one texture sheet. Your model will also use less resources in game, because it is only loading the one sheet instead of dozens of little textures. It is much more organized this way as well.
Once you have your model textured, finished, and ready for import it is best to merge all the groups, or layers into one single group or layer. It will also save you from having to assign materials to many groups. What i do is leave the master 3ds (or whatever modeling format you used) divided into groups in case i have to go back, and re-edit or change something, The import model is saved as separate and merged final mesh in xsi as a scene. In case anything goes wrong i still have the grouped 3ds i can re-import.
In XSI i delete all of the imported materials, and create a just ONE new scene material. Dont worry about deleting materials. Your UV's will remain untouched. I dont trust the imported materials, because i have seen wierd side effects when i exported using the imported 3ds or other formats material.
Sometimes XSI will create extra 'phongs' when i create a new scene material. I just delete those extra materials, and use only the one scene material. I apply my textures to the phong in scene material as per the modding documentation. It has worked for me so far doing it this method.
Another thing is the Tangents. Many people (myself included) seemed to have a lot of trouble doing this. Once i understood it then it became easy. You need to Duplicate your UV's in XSI. (in your UV window just it Edit\Duplicate UV's) Then assign your tangents to the 2nd set of UV's The modding documentation shows you how to do it. Remap the 2nd set of uv's from the top down. That is the most basic set of tangents you can give it. You can get more into detail if you wish, but that is just a quick, and dirty way to do it until you can understand how it works better. It is very similar to smoothing in 3dsmax. It is just tedious.
