DDS files not showing in Zmodeler3

I am trying to work with this item:

http://gtapolicemods.com/downloads.php?do=file&id=1871

I place it into Zmodeler2 and all the textures show up then I export as a z3d file.  Once in Zmodeler 3 the item shows up, but there are no textures.  I have tried converting the png textures to dds and replacing with no luck.  I have also tried putting the z3d file and textures that have all been converted to dds in a separate folder so that the textures are already in dds format and in the same folder.  The dds textures are supposed to show up in Zmodeler3 correct?
 

I do get an error when exporting to z3d from zmodeler2 which states:

ZModeler is ready.
Extra slot occupied for texture Layer #3 in material "grey mesh".