Ultimately we should be able to do either. I've had a brief look at units and monsters in the XML but haven't played with them at all.

Basically the unit is called into the game via the XML.

In there you dictate various parameters including the model, stance animations, etc. If you designed, for example, a NightMare horse you could build the model with bones I guess and then, via the XML, just tie in the animations with the existing horse animations (there are a few four-legged creature basic animations). If you designed a centaur model then you would most likely need to build all the centaur animations as well because of the four legs and the human torso.

The animations cover such things as idle stance, tac battle idle stance, death scene etc.

Flying units are a big unknown but Frogboy has indicated that there will be some in the game - but they are not supposed to play a big role.