For 3D modeling, it depends on your skill, budget, or whatnot. Blender is a good free solution, although, in my opinion, the learning curve is horrible. I used Milkshape 3D for some things, but I'm not sure everyone likes it.
For converting to DDS (the only texture format), there are tools in the download section. You can also use the free Paint.NET and plug-ins for the free GIMP or Photoshop.
For making textures, interface, design or whatnot, the GIMP, Photoshop, Paint.NET, whatever. You can also use TGC Texture Maker, which is a good tool, although you will have to save in a format and then convert it to DDS.
I'm not much use on 3D modeling because I haven't learned it, but I guess others have suggested pretty good options.