Its not at all a problem.
This was the first and only model I have come across so far where this large bones issue has cropped up in Milkshape. I have not seen it show up with any other FPSC characeter model.
As it happens The bones show up fine in Fragmotion. So I just Ignored the display of them in Milkshape as you cant really edit them there because of their display (do that in Fragmotion if necessary) and the model and animations seems to work OK inside FPSC.
I dont realy know a great deal particularly about rigging in any programme - its basically the same for any programme and its not rocket science - just a lot of painstaking work.
All thats needed is to get your skeleton or make one up from bones - sellect relative mesh vertexes which is the hard part and assign them to each bones appropriately. Once thats done its simply a matter of selecting the various limb bones and moving/rotating etc them to differing positions to simulate the character movement and assigning keyframes to each position. If all correct then the mesh will move as you move the bones. Just a lot of hard work unless you have progs which can do some of the work automatically.
Fragmotion certainly and Milkshape too perhaps can auto assign most vertex and that can help if it gets it right. Just any stray ones then to correct.
My favourite tool is Truespace and plugins to apply skeleton and animations automatically - but my version is way behind and out of date and wont export correctly to FPSC - it needs updating and to be honest. I cant afford to keep up with the upgrades. Stuck then with hand rigging and animation.
Bugger.
The trouble with animating by hand is that as far as human type characters are concerned is firstly its a very long job and secondly there no way you will ever match the realism of systems that use motion capture or similar which gives excellent quality realistic movement. The best we can hope for doing it by hand is poor by comparison. Humans and animals have very complex body part movements.
I think there are already some tutorials re-rigging and animating around the forum already. Milkshape (help) and many other programs web sites also provide a lot of information and tutorials on the subject and I would only be repeating anyway information which exists a plenty - we just need find it.
What I do know I taught myself and leaned by following such tutorials. The basics are quickly picked up if you follow the help files supplied with Milkshape alone.