Characters

Miscellaneous Forums/Content Creation Tools/Characters

I think Milkshape is the best choice. It was designed with Character Works in mind. It imports and exports a lot of game formats. It is cheap, not totally for free, but hey. And there's a lot of good tutorials around, on how to make characters.
If it really has to be freeware then I agree, wings3d or animat8or for modelling. Blender may be too complex to start with IMHO.

For the texture parts you may use the cheap UltimateUnwrap3D or the freeware Lithunwrap (make sure to use the latest release: v1.3). Basicly UU3D is the sequel of Lithunwrap, and it has a lot more features, so UU3D is well worth the money. (eg it does import and export animated B3D).
Painting could be done using the free "The Gimp" for Win32, just for in case you haven't got Photoshop.

Skinning and Unwrapping etc. also requires to go trough some tutorials, since it's a special job. It shouldn't be hard to find good tutorials.

Finally, animation. I'd suggest to use "Pacemaker", cheap and noless pro features, plus still supported, with an increasing userbase.
The only freeware animator for Blitz3D that I know of is AnimB3D, see Toolbox section.

You may find most of these tools using google or yahoo.