Did you look around the options? I had a similar problem, except with Blender. I looked around in multiple menus then found it quite easily. You just have to think about it. Milkshape sucks, get Blender. My opinion...
You have to have a png with the same name as the material in the zip with the addon, generally a 16x16 with the colour you want as the picture.
Lol, literally, "A skybox".