Not sure about Milkshape but if u have a copy of 3DMax, or Maya its easy. Go to the downloads page of the main site and look for the plugin for the program you want to use, that way when u create the models and the animated frames you can export as .MDL

This file can then be imported and used in the WED engine

the link for Max plugin is

http://download.conitec.net/max6tomdl.zip


:-)


Also

what you want to do is ensure that for each animation stage you have the frames follow on from each other in the same Model. for example frames 1-10 are walk, frames 11-20 are run, framse 21-30 jump etc.


then you need to write a script to cycle the frames over and over depending on what key is pressed. Check out ent_animate command in SED manual and look at template scripts for animation, I recomend doing the scripting tutorial as well too :-)