You're welcome, hope you find a solution! ^^

I think you're right but I must be doing something wrong in the lua. No worries though, I appreciate your help!

Just checked in Hammer too
When you click "Open Source" on a texture it opens the .vmt.
So yes indeed the .vmt is the heart and try it with that.

I hope that works :D

I never experimented with servers, so this is just a guess. since SetMaterial() got Material in its name you could try and set the .vmt instead of the .vtf.
Source textures always consist of 2 parts:
The .vtf, which is the plan texture; the pixels; the skin of the surface (that's what the t stand for)
The .vmt is the heart; it tells the texture how it should behave, reflectiveness, bullet holes, transparency, etc. (the m stands for material)

So I'd guess that's why you read .vtf is incompatible with SetMaterial() but maybe .vmt isn't

Adding them server so the clients download and see them. I've got them on my FastDL right now and tried using Entity:SetMaterial() to apply the changes. I read somewhere that it setmaterial doesnt support .VTF but I'm pretty sure it does.

Could you rephrase that? I don't quite get what you want to say. If you wanna have some chrismassy skins you can just press download and every weapon and ammo box in TTT should be reskinned

How would I go about redirecting the weapons to use these textures?

Great Addon. We really enjoyed that one!