Yes, Milkshape is damn fine. Simple, easy to use, slightly more difficult to export from (well, not so much since MagosX created his tool). Have to watch out, though, still gotta use the Zero Joints tool before you start to animate.
You don't need a program to make aniamtions. If yer up for a real challenge, do em in the mdl. Very hard though, the only person I've seen do it is armel.
No, make/animate your model in Milkshape, and use the exporter (to MDL text, with the need to mess around a lot) or import to MagosX's new tool (much better). The zero joints tool must be used within Milkshape because of the differences in the way bones are initially set up in warcraft and in milkshape.