DRAFT
The old material definitions have to be commented out or deleted from the the ~.rad file when using a ~.mat file. This is because the last definition given for any material is the one which is active, and since the ~.mat file will always be read prior to the ~.rad file, any definitions in the ~.rad file will interfere.
Whether you choose to move all material definitions from the ~.rad file to the ~.mat file, or only certain ones you want to rework, is a matter of personal choice. I've found that if you're working on a big model, and only changing one or two materials, it is faster to only put those into the materials file. However, if you're working on an extensive model, and redefining several materials, even just for color tuning, I've found it to be well worth the little investment of effort to get all the material definitions moved over into the ~.mat file.
Here's a step-by-step process for setting up a comprehensive ~.mat file.
1) Export the files from DW as usual. Open the ~.rad file in your text editor. Also open a new text file, named ~.mat.
2) Starting at the top of the ~.rad file, and working carefully, use the Find function to find each material definition in the file. Search on "plastic" to skip over the materials instances for the materials definitions. Each time you find a material definition, Cut the four lines of text from the ~.rad file, and Paste the text into the ~.mat file.
3) When there are no more ocurrences of "plastic" in the ~.rad file, save it, and save the ~.mat file.
4) I also like to move the sky definition over to the ~.mat file.
5) Now you can edit the material definitions in the ~.mat file repreatedly without causing an octree recomputation.
6) Also, now if you create a new version of your model, you can simply Find and comment out all of the material definitions, without having to slow down and think much, unless you've added new object colors. (You can track new colors/materials by keeping notes as you model, or simply wait for Radiance to tell you about them in an error message.)