Process?

First make the rig like this:
http://wiki.blender.org/index.php/Flying_Bird_-_Building_the_Rig

Then, I skipped the second part of the tutorial, I just parented (ctrl-p) the mest to the armature and in 2.46 it's possible to say that bones use Bone Heat (instead of old closest bones, which wasn't quite as impressive).

That's all!

Basically take model, draw bones (i.e. armature), parent and animate... Ok, it's not perfect, but if you want to refine, you can use this as a base for vertex painting...