Where do i save the skin files that I create?? i have no jpg files in my current skin folder. should i be converting the jpg's to DDS?

just put them in the skins folder, they will automatically be converted to dds next time you start up LFS, the dds version will be saved in skins_dds.

ok thanks. so even though i dont have default files it will be ok?

yes. i think they are in the skin_x oder skin_y folder (not sure if it's the correct name)