I don't have milkshape myself, but someone may find this useful...
http://www.sio2soft.btinternet.co.uk/
Overview
MilkShader for MilkShape 3D (hereafter referred to as "MilkShader") is a replacement graphics driver for the widely-respected low-poly 3D modeling app "MilkShape 3D" allowing the 3D viewports in MilkShape to use DirectX Vertex Shaders and Pixel Shaders for enhanced rendering. MilkShader uses the Effect file format as described in the Microsoft DirectX SDK (Software Development Kit). See "Effect File Reference" in the SDK for details.
Features
Exploit the power of the latest graphics cards whilst working in MilkShape.
Control over real-time rendering in MilkShape's 3D Viewports.
Write your own Effect files (containing your shader instructions) for custom rendering!
Built-in editor window - alter the text of your Effect files and see the result without leaving MilkShape!
Support for printing Effect file text from the editor window.
Integrated Effect and Shader debugging. Obtain feedback of most errors in your Effect file via a Debug output pane in the editor window. Double-clicking on an error message brings up the respective line in the editor window, ready for alteration.
Support for "Take Screenshot..." commands in 3D Viewports.
Support for "Record AVI..." commands in 3D Viewports - make high-quality animations!
Support for Multisampling (anti-aliasing) in all viewports for reduction of jagged edges.
User-defined background colour for 3D viewports. Useful for screenshots and recording AVI movies.
Demonstration Effect files supplied as a starting point for your own Effects.
Supports HLSL shaders (Microsoft's High Level Shader Language) for easier shader writing.
Support for asm shaders (shaders written using standard Vertex Shader and Pixel Shader assembler instructions)
