I don't know if you can legally make a Xandros liveCD since Xandros isn't free (as in speech). Besides, I have found Crossover Office in Xandros to be very iffy and I never managed to get 3ds max to work in it for the couple of weeks I had it on my computer.
You can do all of the model and texture work in Linux or a similar non-Windows OS with Open Source software like Blender and the GIMP, but I think you're either going to have to dual-boot into Windows or have a seperate Windows machine to convert the models to .mod with something like 3ds max or Milkshape 3D.
By the way, do you know of a good guide to learning Blender for someone who as used nothing but 3ds max? I tried switching to Linux as my main OS earlier this fall, but I had to go back to Windows because of my 3D graphics project.