.X is the DirectX format as far as I understand. Cube 2 is written in opengl so I doubt rendering a .X mesh is going to happen anytime soon.
Blender does have the ability to Import .X so that might be of some help. I don't know how much experience you have with blender but
it's a great 3d app once you get by the user interface. Call me crazy but I've actually come to prefer blender over 3ds max and maya.
I guess its more a matter of not having to worry about licensing with blender.
A little explaination on md3s/md5s. Md3s are vertex animations, all of the animation is stored in one .md3 file.
Md5s actually use the bones/rig/armature (whatever you want to call it) for animation.
You need a seperate md5anim file, along with your md5mesh, for each animation you would like to use.
I downloaded the dwarf.rar you posted and after I imported the included .obj into blender I found there to be no animation. Other than that, sweet model.
If you could somehow get your friend to export to a format that supports animation I would have no problem converting it to an animated md3 for you.
Edit Actually it seems that animations aren't supported for importing an obj in blender. Still wouldn't mind seeing what the character looks like animated.
The reason the texture for the axe doesn't look right is the axe and dwarf were one mesh.
To texture them properly you need to seperate the axe from the rest of the model, and rename the object.
Down below I have posted a link to an archive where I have converted this model to md3. If you look at the config file youll see how I textured the dwarf and axe seperate.
http://www.mediafire.com/?t4yjkmyzn42
hope this was of some help
take care.
-daniel_san