Scupting figures is actually really popular among metal miniature wargaming hobbiests (e.g. Warhammer). I don't wargame, but 7 or 8 years ago I looked into making a 1/64 scale castle scene just for the heck of it and stumbled on to this hobby. Basically, you can build up a figure in two part epoxy putty (e.g. Miliput, sold through Micromark) or a polymer clay (Fimo or Supersculpy, both available at most craft store, Wally world, etc.). They can be worked on some kind of a metal substructure -- either fabricated from wire but there are some manufacturers who do white metal versions. This yahoo group is useful:
http://groups.yahoo.com/group/1listsculpting/
The late, great John Allen also had several articles in Model Railroader demonstrating how he fabricated HO scale figures using a wire substructre and mortician's wax. I've seen these articles scanned online somewhere, but can't find the link right now (it may be on one of the Gorre and Daphetid yahoo groups).
As others have said, it's a total pain in the you know what to sculpt your own figures. In 1/64, which is bigger than HO scale, I never succeeded in producing anything better than green globs. I do, however, still use two part epoxy all the time on figure modifications and other model railroad stuff. But, scupting can be done and the yahoo group is a good place to get started.
-Joe