thanks angainor88 my AO png seems to be baked 99% white so I'm guessing perhaps my transparency setting was overlooked.. I will check that next & thx.
here's my icon set I did last night. TY Red..

Suggestion: Tiny Indians Theme Mod
Edit: Back from testing that and that seemed to do the trick angainor!
Blender baked the outside of the UV coordinates of the models texture
black ..so changing that to transparent the mystery/issue is now solved, Thanks to your Advise it's looking better.
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Todo:
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Last things I need done to finalize the SmallTipi project and move on to other things is:
1) Figure out how to add material texture set variants by pressing the F key.
2) Figure out how to add a custom damaged model which was not covered in the tutorial.
Then I should be able to start making larger versions without issue & start sorting out what else I need to plan on doing.