Cross post from mapcore:
I would avoid viewport shaders, I mean yes, they're fun to play around with, etc, but they tend to be buggy, unreliable, they crash, and they would never look exactly like it will in the game, etc.
It's much easier to just hit export and in 0.5sec your back in the editor tweaking the material settings in CE3, rather than spending shitloads of time trying to get the shader to work, get the settings right, etc. It's wasted time, imo.
Just paint your vertex colors where you want the two materials to blend (white for one material, black for the second), and export to game.
In the game, open the material for your asset, and tick vertex colors in the material editor, etc. Check the last link.
PS. Blend and dirt layers are very similar, but with dirt you only have smooth transition and difuse map only.
Guide for the dirt layer (very useful to just give grundge detail to your surfaces): http://sdk.crydev.net/display/SDKDOC3/Dirt+Layer
And the blend layer AWESOME TUT FOLLOWING
My 2 cents!