As for permissions, majority of model makers release for free, and the user who has downloaded it can do whatever s/he wants with it, which includes remodelling and moving the model into another game. The problem arises when the person rereleases it into the public domain, then it breaches copyright (think this was what you were getting confused with jakg) if it has been released without approval of the owner (if you cant get in contact, general consensus is to put the authors name in the credits). Only other thing is if the owner has explicitily said in the readme no reverse engineering of any sort, (which 90% dont, you only generally see this in marketed products). Had to do all this copyright stuff for university, doing computer games design :] Just thought id fill in the details.
As for moving it into LFS, your going to need detailed knowledge of coding, to make an app that can convert into the correct format. Kegetys is a wizz with that stuff, but good luck to you, if you do manage to do it. however, I implore you not to release it.
At any rate buy S2, you'll love the experience.