I suck at writing tutorials normally(I wrote the "Easy" way for the MM8BDM Linux tutorial), but I might as well give it a go.
I assume you already have your medal sprite set up as a PNG. If you don't you can make it easily with your friendly neighborhood
GIMP, Photoshop, or Paint.NET.
The Spriters Resource has tons of Mega Man sprites to compose your medal with, but you probably already knew that. Remember to fill the non-sprite bits of your image with transparency as you would a skin. I haven't tested it, but you should probably set the image to use a indexed color palette to - just to be safe.
Fire up SLADE and open MM8BDM-v1c.pk3 or whatever the main data file is called when you're reading this. Click on sprites then skulltag. You should see something like this:

Select the sprite that you want to replace. Usually the first four letters of the sprite name match the first four letters of the name of its medal. For example, the sprite for the Excellent Medal is named EXCLA0. Now pick Import from the toolbar and and find your new medal sprite.

Set the Type combobox to Sprite(since that's what we're working with) and the offset number in the second box to 45. From here, tweak the offset numbers as you would a skin. You want the bottom edge of the faint grey box around your image to be
just above the horizontal black line and the vertical black line to be running through the center of your medal. Click Save and you're done!

Unfortunately, this procedure isn't likely to work for WADs placed in the skins folder due to how Skulltag loads them. Feel free to prove me wrong though. MODs that are loaded in a server that contain custom medal sprites should work fine.