So I don't use the in-game compiler for mods, but theoretically it should work. When it compiles the model, it puts the mdl file (+associated files) in your C:\Program Files (x86)\Steam\steamapps\common\Team Fortress 2\tf\models\workshop\ folder and the vtf/vmt files in your C:\Program Files (x86)\Steam\steamapps\common\Team Fortress 2\tf\materials\models\workshop\ folder. When you are renaming the mod to replace an in-game item, you can move the mdl file out into the correct folder structure (without the /workshop/ folder), but keep the material folder structure how it is-- otherwise the mdl will be looking for the material in the \tf\materials\models\workshop\ folder which it can't find.

Okay. That would explain why only I could run the mod. What I did was change the materials and models folder structures to that of the ideal vpk folder structure then converted to vpk. From my understanding, the reason why this wont work is because the mdl is still looking for files in the wrong folders and that it would require manipulation of hte mdl folder to fix this.

I would like to know how YOU would compile the mod, as I rather a use a successful method from the start if it isnt a hassle for you to explain it to me. It would be greatly appreciated!

Well I basically just do exactly what I show in the 1-hour video I posted to youtube 3-ish years ago. The basic process is this:

1. First apply any materials/textures to your model within blender making sure to note the name of the material (for example "adiponectin.tga").
   
2. Export your model to .smd format and generate a vtf/vmt using VTFedit.
   
3. Save these texture/material files using the exact same name as what was applied in blender (e.g. "adiponectin.vtf" and "adiponectin.vmt").
   
4. Create a folder structure of exactly how the model you want to replace looks like for the eventual mdl file (+associated files). Therefore if you want to replace the Bloke's Bucket Hat, you'll want to create a folder structure like \...\models\player\items\sniper\
   
5. The material folder structure doesn't matter as long as you specify where the vmt is in the QC file. The vtf location is specified by the vmt (it's easiest to just keep these two files in the same place).
   
6. Create your QC file. For the $modelname line, name the mdl exactly what the VPK version of the hat you want to replace is (e.g. "sniper_fishinghat.mdl").
   
7. With your .smd ready to go and your vtf/vmt in the correct folder, go ahead and compile the QC using GUIStudioMDL.
   
8. This will create the .mdl and associated files in the correct folder structure. To make this into a mod, simply create a folder that you want your mod to be named (example: Bubbles). Put your materials and models folder inside this folder, and then drag the Bubbles folder into the C:\Program Files (x86)\Steam\SteamApps\common\Team Fortress 2\bin\vpk.exe application. This will automatically make a VPK of the folder Bubbles. To install the mod, all you need to do is drag Bubbles.vpk into your C:\Program Files (x86)\Steam\SteamApps\common\Team Fortress 2\tf\custom folder.

If you need further help, all of this is described in the video:
https://www.youtube.com/watch?v=-X5QGx2TP_8

Thank you very for the reply! I really appreciate it!