After perusing the forum a bit, I was unable to find any clear, concise instructions on flat-shading (in regard to MilkShape 3D). I found several that suggested many things, but none that I saw provided step-by-step instructions that actually worked. So, after messing with MilkShape for a while, I found a series of steps that works for me. Hopefully this will answer everyone's questions.
1. Create your model.
2. Assign all parts of your model to a material.
Multiple materials can be used, resulting in multiple shades:
Full Color = blank.png
75% Color / 25% Black = black25.png
50% Color / 50% Black = black50.png
50% Color / 50% White = whiteCheck.png
25% Color / 75% Black = black75.png
3. Select all faces that you want to be flat-shaded.
4. Click the 'Vertex' menu and choose 'Unweld'.
5. Under the 'Groups' tab, uncheck 'Auto Smooth'.
6. Click the 'Vertex' menu and choose 'Weld Together'.
7. Click the 'Tools' menu and choose 'Tile texture mapper..'.
8. In the 'Tile texture mapper settings' window, just leave the default settings and click 'OK'.
9. Click the 'File' menu and choose 'Export' and then choose 'Torque DTS Plus...'.
10. In the 'Torque DTSPlus Exporter' window, uncheck the following:
'Generate .cs file'
'Output dump file'
'Export Animations' (Unless your model uses animation.)
11. In the 'Torque DTSPlus Exporter' window, click 'Apply' and then click 'Export DTS'.
12. In the save dialog, choose your filename and save location and click 'Save'.
13. In the .cs file for your item, modify the following properties to match your desired effect:
doColorShift (true or false)
colorShiftColor (Red / 255 Green / 255 Blue / 255 Alpha / 255)
That should be all there is to it. I made several models with this technique and it worked for all of them. Let me know if you have any questions about or problems with flat-shading that aren't answered or solved by this tutorial.