can someone explain how this is supposed to work? it seems like it doesn't work the way you would expect when reading the source. i can't get all of my textures to show up unless i include blue in the skin 1 file. but blue is supposed to be the shadow channel. the shadows seem to show up where ever they want.
help is appreciated.

Well, I use mtl_terrainmulti3 in my game and it works fine. In the first skin I've got the black, red and green skin. Then in skins 2,3 and 4 the three different textures. The first texture goes over all the black pieces, the second over the red areas and the third over the green areas.
I have however not been able to get the blue to work - just shows up as a LIGHT spot instead of as a shadow. Have you set up your skins like this?

For the blue channel: use a medium blue (RGB 0/0/128), where you want normal lighting on the terrain. You can start with a RGB maps blue channel filled with such a medium blue.
Now you can paint shadows with dark blue and bright spots with a more saturated blue. It´s a matter of taste, but normally I would avoid too extreme values ...

Ok finally figured it out. now i am using black red and green to blend the textures and then using a layer in photoshop of pureblue shadow areas and this layer is set to linear dodge. i also had to turn on ps1.3. in GS. i think that's all i did.
too bad it will be a pain figuring out how to get the shadows placed where they need be.