This can occur sometimes as DDO may be using the material you are trying to overwrite. To work around this, simply delete the XML-file of the old material in the browser window that pops up when you click "save smart material". Just select the material you want to replace and hit delete, this will also copy the name to the name field. The thumbnails will be overwritten when you save.
How do I overwrite my "Smart material"? DDO says it's locked!
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