You are both correct. The promeshes used are LWO files. I don't actually use Lightwave to model stuff, but it's needed for the final conversion. LWO version 5 (the implementation the game uses) does not seem to support mesh deformation or IK stuff, so it's perfectly feasible to model your pieces in anything else, then load it into Lightwave (OBJ works fine). I give out my copy of LW8 to people who ask and I'll give you a voice rundown of the things you need to do, since Lightwave's interface is a bit special.
Even if you use jamesster's tool for the export, you'll still need LW if you want to make anything more complex than a single model. The animator tool is pretty bad but I got used to it. I can make tanks, new monsters, and even stompy robots with it, and I don't have professional experience, so it can't be that hard to learn.