My apologies again. Gavan replied on the LT forums so I'll post his reply here for everyone's benefit!
"Hi Charley - a few options: 1) 3D scanning in miniatures 2) traditional model import 3) using the procedural character generator I am making. Right now it is very early (I've only put about 1 week of work into it), but you will be able to make all kinds of stuff with it, not just humanoids but beasts as well, with no particular size limit or detail limit. So far, its actually pretty easy to use but I can provide templates of body types and poses as well. It will also look much more detailed with varying textures, clothing/armor, etc.
Characters will be posed, like miniatures, and can have multiple poses, but I am avoiding animation intentionally at this point. Its actually fast enough that I can animate characters in realtime, but there are many other issues to consider with animation and it is just not required yet to get a functional game. Other things, like particle fx, will be animated (i.e. tossing a fireball at someone)."