The best way for the developer of Engine XY is to offer special exporter for each major 3D-Application. This way you dont need in-between-formats like FBX or Callada. Sure... it is a lot of work to support several 3D-Applications.
The advantage is: Only engine-xy-required structures are exported.

Each engine has special requirements for their mesh-file-format. Thats the reason why Gamestudio's mdl, Torque's DTS and so on exist.

The new Torque-Engine (T3D) can import Collada's but these files are converted internally to DTS.

Apart from that... Conitec's way is the correct way. You have your MED to import FBX, X, 3DS and so on. Now you can tweak your model and export it to MDL7.

But: If possible i would always prefer a special (and optimized) exporter for my favorite 3D-Application.