I am not sure what is happening in the second picture, but it happens every time I change my "Show material in viewport" from shaded to realistic. The normals and Diffuse look fine in UDK. Does anyone know what the problem is and how I fix it? thanks.

Nothing happened in the second picture,, maybe its casting shadows....

The realistic shading shows a preview of your normal map and specular in the viewport. The color change is a result of mixing those elements.

If you render does it look the same?

is exposure control kicking in perhaps?

setting it to realistic in material shows normals, specular and scene lighting/effects.

to view the true diffuse of an object, switch viewport to consistent colours then disable shadows in the lighting & shadows in your viewport settings

@Ken Benson

The render looked flat for some reason, the only way i fixed it was bu exported all my stuff as obj and reimporting it to new max file. Merging it didn't work.
Specular was turned off.

@r_fletch_r

not sure.

@unstopablex

There was no specular map or lighting in the scene.
The problem wasn't looking at only diffuse, it was looking at normals with diffuse on.
I am still not sure what caused it, but now I fixed it by exporting then reimporting the static meshes on to a few max file.



I have fixed the problem now but thank you guys for trying to help.