It just pokes through. Aren't vanity hats supposed to just show the vanity hat and not the normal one? My Engineer is wearing iHelmet and the cat ears. I figured since the effect would be the same as hiding hat that I wouldn't hide it. As soon as I unchecked Hide Hat, her helmet appeared and started to have ears instead of being hidden by the vanity. It works fine with Hide Hat checked, but when it's disabled the vanity cat ears doesn't hide the regular hat.

My Touch 4g, Android 2.3.4, downloaded from the Market.