First - SET YOUR HOTKEYS SO THAT W=WELD. Your welding will go much quicker!
Ok the welding distace, found in edit mesh>vertex>weld, is usually set very low, try increasing this distance. The very cool thing about doing the weld vertex thing is that it averages the position of the to-be-welded- vertices. Say I have two vertexes one at 0,0,0 and another at 10,10,10 (X,Y,Z). I set my welding distance to 10 or greater, select the two and hit weld. the formaly two verexes are now one at 5,5,5. See, when you are simplfying a mesh using weld, its maintaining the same shape (if your careful). Collapsing faces is good only for large areas of mesh. you dont want to collapse faces on edges, it craps on your whole day. and it will distort the edge as it pulls the edge vertices, but you'll see as you work on that awesome chandley of yours.
Don't forget to SET YOUR HOTKEYS SO THAT W=WELD.I dont know anything about milkshape, sorry