If you are using 5.3 try this. Select no mod. Then in the custom flags box in features type -mod FS1Port,mediavps (assuming that those are the names of your FS1 Port and Media VP folders).
Yeah, that should work. The problem is just the bugs in the launcher code really. The mods are "-mod @_FS2, ,@Media_VPs", and the ", ," (as space) counts as a mod as well. That's why I added the the root index list to the debug info. If you look at it (the debug info) the problem should be kinda obvious, it's looking in @_FS2 first and finding no VPs, next it looks in " " which isn't a valid directory so the file system will consider current dir instead (meaning the main FS2 game dir), then it looks in @Media_VPs, and finally the main FS2 game dir again. Since the original VPs are being found before the MediaVPs it would always use retail data except for certain cases (ie, EFFs are searched for before ANIs, and glow and spec maps would not be found in retail data).
So, Arkblade, just do what karajorma said and use the mod cmdline directly, ignoring the mod.ini files all together. It should start working fine after that. And never use @ characters (or other type symbols) in a directory or file name. Different file systems will handle those differently (for instance the " " would have worked as a real directory under Linux) and the game could stop allowing such things at any point, especially since it could cause various unexpected issues for the game code (currently or in the future).