I think that I got the materials to show up correctly in WED.

In Blender:

1. Create 3D models using inches as units.
2. Create materials for 3D models.
3. Divide the single view into two views.
4. Call up UV/Image Editor window on one view.
5. Call up UV Face Select mode on other view and enable textured shading mode.
6. Select faces to be UV mapped.
7. After loading image files into UV/Image Editor, choose desired image.
8. Call up Object Mode and make sure that 3D models are selected.
9. Save 3D models to *.blend file.
10. Export 3D models to 3D Game Studio MDL file.

In 3D Game Studio WED:

1. Create new level.
2. Load 3D models from MDL file using File, Import, Import from MDL Files. DON'T use Object, Load Entity.
3. Save level, create new level script file, and assign actions to 3D characters.

Question: How do I tile the image on 3D models in Blender?