Eureka! this is how excited i was when i figured out how to mesh hair with XSI MOD TOOL..
I Never really liked milkshape and now ive figured out this im sharing it with youse! This is not a beginners tut!! you should know how to make a mesh because this aint that clear, i tried to make it clearer burt it gets confusing if youve never used xsi or impe before :S.. I Will Try Add Pics Later When I Have More Time,

I Assume You Know How to use xsi mod tool a bit and thats where this picks up from, so please go learn about it here first: http://www.modthesims2.com/showthread.php?t=118986
This One Is Also Very Helpful for when importing your edited mesh,http://www.modthesims2.com/showthread.php?t=141597 (scroll down a bit and download the tut file by jasna_bugbreeder)

Lets Get Started

1. Make Your Mesh Package and such using the instructions listed in this tut, Beginner Meshing By Tiggerypum http://www.modthesims2.com/showthread.php?t=142305

2. once you have done that you need to export the smd (click on your gmdc in the mesh file and click export MAKE SURE YOU CHANGE THE FILE TYPE THING TO SMD FROM OBJ IT SHOULD BE SELECTED SMD EXPORTER BY SKANKYBOY) BUT! you can only export one group at a time so export the first group usually hairalpha(numberhere) and then export the next hairalpha(numberhere) dont worry about the hair group unless you are using something like that maxis ponytail that shows it.. remember to label each one so if you export say hairalpha7 add that to the filename to know which is which..

3. once you have exported your groups go into mod tool click on valve source import smd then import one of the groups, then once that is in import another smd, the other group..

4. IMPORTANT! Now go into scene explorer and you should see the two groups names at the bottom of it click one of them, it should be highlighted in white, then hold ctrl and click the other one, they both now should be highlighted, DO NOT FIDDLE WITH THESE SETTINGS

5. close scene explorer and click select point, and then edit your mesh as pleased..

6. click valve source and then click export smd, name it edited(meshnamehere)1 or something

7. go into simpe, open your mesh package and click the gmdc, select import and change the maya obj importer to smd importer by skanky boy (like when you exported) and find your edited(meshnamehere)1 click it and then click open, then tick create bumpmap normals and then continue.

8. See on the side the box that says group settings, and then see where it says add and then has a down arrow? change add to replace, then another little box pops up, which group do you want to replace? you can do this in any order just dont replace the plain "hair" group, click ok

9. repeat 7 and 8 but this time dont restart SimPE and REPLACE THE OTHER GROUP YOU HAVENT REPLACED YET not "hair Though. click ok

10. then tick all the groups and then preview, it should show your new mesh! check it in bodyshop and then in game and it should be done! give it a nice texture and upload to MTS2! lol

Hope this was helpful!!!!
Please ask me questions if ya dont understand
Harry