Whenever I have to manually texture an object in-game, it is a red flag that there is very possibly something wrong with the object itself. (This assumes, of course, that the object and texture are in the same folder.) I was able to get the object to texture in DBP. I don't know why I was able to get it to work, because I did the same things you did.
I did load the model into Milkshape, textured it and exported it as an .x file and it worked without manually texturing it in-game.
The object you are using is very high-poly (28,800). I would suggest making a simple plane, texturing it and exporting it and see if it will work in DBP. I have had texture issues in DBP when the object is high-poly, so it's worth a shot. If you have the object and texture in the same folder and it won't show up in-game, then I would suggest you look at your method for exporting (sorry, I use Milkshape, so I cannot help with Blender).
LB