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3 factors that could cause the checker:
1. Ensure the .QC file points to the correct material directory
2. Check the formating of your VMT file, make sure it's vertexlit

also use "$model" "1"

3. Check there's no errors when compiling the SMD (problem I had)

If you have an error during export to SMD the log will tell you which object is the problem. In Max press "H" to "Select from Scene" and you can select the problem by name.

Fixed it!!!!
Turned out the problem was with the model itself. Checking the export log there was an object with no texture assigned. It works with texture in game now though both the model and texture are ugly and I'll have to make them again.

Thanks for your time and patience Uragan_Lex

Yep, used the same name for the texture in Max as the QC. The following zip contains:
.VMT
.VTF
.MAX
also included the ref, anim and phys SMDs.
http://www.mediafire.com/?1li2ixql1x0

Looking forward to resolving this problem and making some progress on my current map.

lol, posted here because i thought you may be getting sick of my questions at mapcore Uragan_Lex.

Still no luck. I've tried using different formats for the texture in max other than VTF, and playing around with the qc. I'm completely out of ideas. Here's a pic of the model rendered in Max using the VTF texture and a screenshot from HLMV

I've followed Generalvivi's Source modelling tutorials for 3ds Max however I've ran into a problem with my compiled model, the dreaded checkered texture.

I used Wunderboy's 3ds Max VTF pluggin so I was using the VTF as the diffuse texture in Max.

The VTF is contained in:
C:Program FilesValveSteamsteamappsaccountcounter-strike sourcecstrikematerialsmodelstest

In my qc file I refered to it using:
$cdmaterials "modelstest"

Any help would be appreciated.