No, it does not work (I had edited the first line of my post stating that it would not). Originally, I could not see any sprays at all after the update, despite enabling them in-game, this is what was done to re-enable them. I did not anticipate the problems with new sprays not working.
I believe I have narrowed it down to DOD:S itself, as opposed to the .vtf file.
VTF files have "versions". As Valve adds new features to their VTF format, they change the version. It seems that regardless of the VTF version, whether I make it lower or higher, has no effect. All sprays made after March 29th (Steampipe update) fail to display in-game. All sprays made before March 29th work fine. At this time, I have no idea what is causing old sprays to show up but not new ones.
I will keep you all posted on any progress I make.
If thats the case couldn't you use VTFEdit to make sprays if you haven't updated the library yet for it since the steampipe update and would still create the VMT and VTF files using the old system. I know its not currently going to work for everyone but it's worth giving a shot.