2. The second issue is, I need to find out if I can even legally do this (modify and re-release a skin)
No, not without written permission from the original author.
1. I don't know where SkinStudio 10 stored my changes?!?!
It modifies the extracted skin folder, C:\Users\Public\Public Documents\Stardock\WindowBlinds\[Skin Name]. If you apply the skin in WBConfig, it should be changed. A couple of things:
You change one substyle of a skin at a time. Are you sure you're editing and applying the right substyle?
You do have to tell SkinStudio to save the changes you've made. There are a couple of ways to do that. If you just Exit SkinStudio (Command Line/ File/ Exit) without ever having saved the changes though, they will not be saved.

