rigging frustration

i’m not trying to do anything complicated, yet i can’t get it to work!
i just can’t rig models correctly… i don’t know what i’m doing wrong: the armatures never stick properly to the mesh, never bend it properly, but only screw it up into a crumpled mess. wieght painting only makes matters worse and more deformed and jagged, not smoother. at every joint the mesh shrinks when bent, and everything looks twisted and wrong. I’m going crazy…
my questions are:
what am i doing wrong?
or am i just total rubbish?

I’m using 2.49b


vast beast.blend (519 KB)

scratch that! i just figured it out! i was using bone envelope when i should have been using bone heat!