You can take a 3D model, and make a 2D sprite out of it. (Take a screen shot of the 3D model, and save it.) Use a paint program to get rid of the background and everything that is not the model. Color the background black, to make it transparent.
Save the 'sprite' in your 3DGS working folder, and load it to your level. Set the sprite to always face the camera.
If you want the model to walk, you will have to add animation frames. Several packages out there make it pretty easy to do that, (Poser, trueSpace5, etc.), but you can create those animation frames by adjusting your 3D model, and taking more screen shots.
I think this is the same technique that is used for the people walking the streets in Grant Theft Auto 3. Usually, they are shown in long shots, so a lot of detail and great animation is not required.
By the way, this works fairly well for trees, also. And if you use LOD (Level of Detail), you can put a lot of objects in your scene, without seriously hurting your frame rates.
Good luck!