Best Torque modelling and animation package?

#1 Hard to answer, it's a personal choice. For me, 3ds Max works best. Maya is pretty decent too and others swear by Blender. Milkshape 3D is a good choice to start out on but it's limited features prevent me using it on a professional level.

Just take them all for a test drive and see what fits you best.

Re the dts plugins, I've found the Max one to be most stable and feature filled.

#2 Milkshape = newbie friendly and free
Blender = Good plugins and free/cheap, better for intermediate use
Maya = lots of advanced feature's. Good for advanced users
3Ds Max = Industry standard, sort of like maya but somewhat easier.

It really depends on your budget and how skilled your artist is. Personally I recommend 3ds max but thats just because thats what all the artists I work with use and im slightly biased. Then again my friend over at bioware edmonton did some animations for mass effect in maya.

#3 It could just be me, but I can't for the life of me to get the 3dsMax exporter to work correctly, so I've been using 3dsMax and Milkshape together, and it's been working pretty well.

I do the model in 3dsMax. In my opinion it's the best for modeling.
I export it to .3ds with Max, and import it into Milkshape.
I rotate it back to it's normal rotation
I place any joints and animate in Milkshape
I texture in Milkshape
Then I export from Milkshape to .dts with the Torque DTS Exporter plugin.

Kind of a long process, but it works well for me.

#4 From my own experience, and talking to some friends at large game art houses, the industry is split at about 70/30. With 70% of the industry using Max, and 30% using Maya. The rest of the tools are used by few professionals.

That's not saying Max is the best, but using an industry standard tool will make it easier to work with other people.