Error: Skinned mesh (meshname) without armature parent has an armature
    modifier target object (armname) which is animated!
    This mesh will probably be mangled.  The problem can be corrected by
    parenting the mesh to the armature, by using armature parent deform
    instead of an explicit armature modifier, or by removing the object level
    animation from the armature (bone animation is OK).

Here's the low-down on this error/warning:

As of Blender 2.47 (and probably earlier versions as well), Blender calculates vertex displacement for skinned meshes according to bone transform deltas in *Armature Space*.  Torque calculates its vertex displacements in *world space*.

What does this mean?  I'm getting to that...

Consider the following scenario:

An armature is rotated 360 degrees in a cyclic animation.  A single bone contained within the armature is rotated 360 degrees in the opposite direction.  The two rotations nearly cancel each other out, with just a bit of wobble.

Two meshes are skinned to the single bone contained within the armature; one using Blender's "Armature parent deform" (implicit armature modifier), and the other one using an explicit armature modifier (not parented to the armature object).

When the animation is played back in Blender, the mesh with armature parent deform will appear to wobble somewhat, but will not rotate significantly.  The rotation of the bone in *armature space* is counteracted by the rotation of the parent armature object.

The mesh with the explicit armature modifier that is not parented to the armature object will go through a full 360 degree rotation during the animation (when played back in Blender); even though the bone to which the mesh is skinned appears (mostly) stationary in world space!

When such an animation is exported to the dts file format, both meshes will appear to wobble slightly, but neither will rotate!

The Bottom line:

In a sense, the results as displayed within Blender are counter-intuitive.  One would expect that Blender should calculate the skinning for a skinned mesh without an armature parent in *world space*, not in the armature's local space.  This weird behavior does have some possible uses within Blender, so I can't really say that this is a Blender "bug" :-)

The bad news is that there is no practical way to reproduce the effect of the one "spinning" cube in the dts file format.  The only way that I can think of that it could conceivably be done would be to duplicate all of the bones in an armature for every skinned mesh, and set/animate the bones in worldspace as if they were in the armature's local space (throwing out or ignoring the parent armature's explicit and implicit rotations).  This approach would be way too messy to implement and the potential explosion in node count could kill performance if more than one skinned mesh is present.

Instead, the exporter just warns the user that animations may be screwy if an armature modifier is used with an implicitly or explicitly animated armature object which is not the direct parent of the skinned Blender mesh.

If you never encounter this error, don't worry about any of the above.