Great News!
Well today is even more exciting than yesterday, because now we know exactly how the .mt5 file is constructed thanks to Master Kyodai's tip on a French developer who was working on creating a Shenmue 1 model extractor. After finding the forum (where the developer posts at) we discovered links to the plugin with detailed documentation on how it works. So essentially we now have a plugin that can extract Shenmue 1 models from the game! (It even rips textures to) As well as detailed documentation so the tool can be improved later on so other developers can add more advance capabilities.
Currently the developer I am in contact with is taking a look at the tool and is going to do some testing tomorrow. He is very impressed by it and I think we both know how big of a leap forward this will be for the modding community. I'll let you know once he gets it all up and running. Here are the links to the documentation and plugin where you can read more about it.
*Note: Currently I have not tested the plugin since it requires you to setup ruby, which as of now I am having trouble with it. I am waiting for the developer to give out proper instructions on how to set it up correctly*
The structure of the mt5 format and how it works:
http://abdessel.iiens.net/dreamcast/mt5/
Pictures of models extracted using the plugin:
http://abdessel.iiens.net/dreamcast/mt5/img/index.html
More details will be provided later on, for now I am going to celebrate with a beer ;)