Model must have less than 20k vertexis (+- 20k, it should be a little bit more, I don't know limits for faces and edges, but they will be similiar).
Export settings in Blender must be as Alastor posted.
Every geoset must have only 1 material. You can't use multiple materials on one geoset, that can be done only on WMOs as far as I know, but definitely not on M2s. Select every single geoset you have, assign a new material to it (while not keeping any material which was assigned to it previously) to make sure there is only one. I'm doing these things in Maya, so if you are not sure how to do it in Blender, don't ask me.
If you follow these 3 basic rules, your model simply should work.
