I found the answer! Thanks to Eric Ketchum’s helpful test project here, I discovered why the decal’s dynamic material instance would always show up as the default decal material inside the level. Apparently, you cannot have the decal as the root of the blueprint, which means you cannot have a dynamic material in a blueprint whose Parent Class is decal actor. You must first choose actor, then manually add a decal component. This is how Eric’s BP test project was setup, and this is the only way that works. Not sure if that’s by design, or a bug.
-Adam