This is a little tricky:

In blender you will need to assign 2 seperate textures (one texture will correspond to your base model and the other will correspond to the faces you wish to be transparent). You can do this using the material editor: https://dl.dropboxusercontent.com/u/10100459/BlenderImages/blender256_material.jpg

Make 2 new materials (give them names), and then assign the vertices to the corresponding materials. Export your smd when you are done.

In the TF2 importer, when you load in your smd file, you will notice an additional texture option. Load in your texture as you would normally, but for the second texture make sure to use the appropriate transparent vmt settings:

• Check the additive box
  
• Check the translucent box
  
• Change the phong exponent to 65 and the phong boost to 6

Thanks, I'll see if I can work it out.

Having troubles.
I've made the model and assigned the whole hat and monocle to material.001 expect the 2 faces of glass which I assigned to material.002.
I then made 2 textures
Main Hat here[www.dropbox.com]
Glass here[www.dropbox.com]
I then did the other things I needed to do (assign bone, make LODs and export).
I then went into TF2 and loaded up the model and the first texture but couldn't find the "additional texture option", also, when loading the first texture it made the glass black on the preview as there is black where here[www.dropbox.com] the UVLayout says the glass is, so I feel like because the first texture is being read for the glass I missed a step to do with the materials in blender. Can you please help?

I can't see any of the images you posted. I'll be able to help you with this in a few hours.

Ok

OK, join the blender chat room.

Edit: Actually, I'm going to be busy. Maybe I can answer this later.