Well I will since you asked, but I hate being critical of other people's work if it's already better than what I can do.

The main thing that stands out to me in that screenshot is that the edge of the hood near the character's face looks too sharp and sudden. Hm... I guess like the fact that there's no hem or anything. Does that make sense?

Weird! I wonder if it's just a bug in the DDS exporter? Or maybe the layer opacity isn't saved in the pixel data internally... Just to make sure that it's all straight-forward RGBA pixels rather than some kind of funky XCF internal format that keeps the RGB and alpha channels separate, try setting the opacity on the layer and then saving it out as a PNG. Reopen that try exporting again. If it's still shiny, then there's something strange about how GIMP handles layer opacity that makes it non-equivalent to an alpha channel.

Actually, perhaps 90% is just too little transparency to make a low-shininess specular map. Did you try setting it lower, such as to 50% or 20%? It should look as transparent as when you used the eraser.

As another way to get full-image opacity easily, you could add a layer mask and fill the mask with grey, which should make the layer translucent. After choosing "Apply alpha mask", this should be exactly the same as if you'd used the eraser evenly over the whole image. If exporting that doesn't affect the shininess, then I'm at a loss for what GIMP is doing wrong!

Any criticism at this point is strictly for my own benefit so I thank you. I think what makes it look so rough is that the original mesh and texture does not have a hem either. Well it does, but its more of a ornamented style hem. This hem didn't really fit with the burlap image I was shooting for so my guess is that when I put a filter on the whole texture that the hem( what little hem there was) sort of became one with the rest of the hood. What I could do is either use a burn tool to lighten or darken up the edge; as well as using a blur filter to make the the edge of the texture not drop off as much. At this point I think its more about trying to have the texture do what the mesh did not and that is give the edge a frayed appearance.

http://img5.imageshack.us/img5/7435/hood1n.jpg - See they sort of soften the hem and use some sharpening along with a defined edge to give the hood the appearance of a hem.

Thanks for the feedback, I think a positive to take away is that I actually understand the tools and what most of them do, and can sort of use them to brainstorm/problem solve.

Edit: Just got an even better idea, perhaps adding some of that shine back the the edge will give the appearance that the material closer to the face is not as thick as the material that makes up the rest of the hood, thus giving it a natural, frayed hem.

Saving as a PNG and then exporting it as a DDS again did the trick. Apparently it was not saving the opacity level that I had set once I closed the program. Must be a bug within the exporter. Also the DDS exporter does not allow for layer masks so just as a sidenote that option is not viable ( for now).

Here's a screen-shot http://img841.imageshack.us/img841/88/hood2q.jpg that was done using the PNG trick. As you can see it looks very similar to the one that I had created using the eraser but took much less time. So for now exporting as PNG is the way to go, maybe someone who has done a lot of texturing with Skyrim would know if it is unique to Skyrim or if it is indeed the DDS exporter/GIMP. Also I added a temporary hem using the dodge tool, it still looks iffy because I did it very haphazardly and the mesh doesn't really want to cooperate but it looks alright for a nice learning building block.

Once again thanks for the help EggDrop, just need to know about that scaling thing I discussed a few posts up and I'll be out of your hair for a little while =P.

Oh, see now that I like much more! Did you add in that hem and scuffed edges this time, or is it just showing up different in the lighting?

I used a dodge tool which softens up and lightens up an area of the texture. I'll keep working with it to make it as natural as possible. Thanks for the support

In terms of technical limitations, the engine doesn't care so long as the dimensions are a power of 2. You can scale a texture up or paint one from scratch. Some people just http://www.skyrimnexus.com/downloads/file.php?id=252 so they can smooth out the pixellation with blur tools, and others http://www.skyrimnexus.com/downloads/file.php?id=225. It all depends on what output you're aiming for. But the engine doesn't care whether you've scaled up an existing texture or made it all-new.