I had that problem with the helicopter I made.You might try just placing a joint slightly below the feet of your character.
I think 1.04 and past uses the lowest joint to decide the bottom of the model or where it should sit when you press ENTER.
You might also try tapping the PageUp key once or twice and see if that will help.
I have noticed that keeps some of the characters from doing that too.
Without being aboe to look at the actual model that's the best advice I can give you.
If that doesn't work let me know and I'll dig into Milkshape and see what I can find out.
I also use version 1.7.9.
I know there's a newer version out but it played heck with my animations so I went back to 1.7.9.
There is also more than one exporter for the direct x file so you might check out different exporters (I know there are at least two) and see if one works better than the other.
You know how Milkshape is.You have to fiddle around with it for a while until you do something right and after that it is usually a piece of cake to do it again.
I can't begin to tell you how long it took me to figure out how to animate a model with Milkshape.