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I noticed that when you import a msh make some edits then export it out the edges aren't smooth as they used to be. I basically want to do this through XSI:
http://www.youtube.com/watch?v=PMgjVJogIbc

How would I do so?

That's automatically done in XSI. Could you provide screenshots of your flat-shaded polygons?

Here are the screenshots:
In XSI it looks fine in most areas: but... The arms and legs are sharp in-game

A lot of importers don't preserve certain normal or geometry approximation data, especially some of the more simplistic file types like .obj and .3ds. I know that the old trooper and jedi star fighter models were XSI Model files (.emdl) and in older versions of XSI I don't think it preserved user normals where as now a .emdl file can store as much info as a scene file as long as the options are set correctly in the preferences.

Just go in and manually add the hard edges, not a big deal and only takes a few mins.

The raw scene files that Pandemic exported to game more than likely had all the hard edges marked making everything look the way it does in game and the data was lost on export to .emdl.

To loose "hard eges", I am usualy, just click, under "Modify" panel: Poly. Msh>Weld Boundary Points/Edges, and set Distance: 0,002, in pop up window.

Thanks Sereja, I think that will do. I'll get back with the results soon.

-EDIT-
Hmm, still no result. What exactly is adding hard edges minilogoguy18?

If you want to have hard/creased edges you just select the edges you want creased, right click and choose mark hard edge/vertex.

So if I:

right click and choose mark hard edge/vertex.

And the edges will be smooth in-game?
or do I need to:

right click and choose mark hard edge/vertex.

then

under "Modify" panel: Poly. Msh>Weld Boundary Points/Edges, and set Distance: 0,002, in pop up window.

Well, actualy, Weld option, may help you connect polygons, if they are disconnected. Just set view from Textured to Wireframe, and select your model. If you spot some light blue lined polygons - they are disconnected, and this may cause hard edge effect. If all of your polygons are white, so, Weld option is useless, and problem hiding elsewhere...

Okay, so the problem is hidden elsewhere then. Any ideas?

Why are you trying to soften edges on something that is rigid anyway?

You could always use a modifier like relax.

This is why: Clones aren't supposed to be rigid everywhere.

I'll try to "relax" it.

You could always just add more edges (and of course buff it...in(?) with the angle of the cylinder) to make it more detailed and to smooth the shading more.

I know that but I don't want to have too many polys, I want to keep it as close as possible to
the original meshes poly count.

Trust me, adding like 16 more triangles isn't going to make really any impact at all on the game's performance, but the decision is ultimately yours.

I'll think about it, first I need to try "relaxing" the mesh.

-EDIT-
Relaxing worked for the legs. I think I can fix it from now on.
Thanks for the help!