Steps to Reproduce
- Open Editor
- Create Material - check if Used with skeletal meshes is disabled.
- Put skeletal mesh on the scene
- Assign newly created material to a skeletal mesh.
- By now Used with skeletal meshes flag should be enabled but not saved. (no marked dirty icon visible on the material)
- The issue is right there but if you want you can also try running the same scene in game mode (without the editor) to see that material will fallback to grey checker.