The file format conversion abilities of Ultimate Unwrap are much better (Ultimate Unwrap is the commercial "big brother" of Lithunwrap, available at www.unwrap3d.com ) Among other advantages, it can import .x and b3d file formats, and does so with skeletal animation intact.
My favorite free modeler is Wings3D (www.wings3d.com) although, because of some technicalities with how it understands the model data, you may want to tweak the model later (usually the model tweaks can be done in Ultimate Unwrap.)
Like jfk said, get CharacterFX for animating. Much better animation tools than Milkshape (eg. the Keyframe Editor) plus it supports blended vertex weights.
My favorite free modeler is Wings3D (www.wings3d.com) although, because of some technicalities with how it understands the model data, you may want to tweak the model later (usually the model tweaks can be done in Ultimate Unwrap.)
Like jfk said, get CharacterFX for animating. Much better animation tools than Milkshape (eg. the Keyframe Editor) plus it supports blended vertex weights.