If you downloaded the OTS installer, then you will only be able to use OTS theme (unless you mess around with the settings). You can find out whether the theme's OTS compliant from the readme.
With OTS, installing themes ought to be very easy, unzip to the themes folder and choose the theme from lsts.exe. However, there might be themes which might not comply exactly with the standard. Heres the step-by-step instructiions
1) Download the theme
2) This might be confusing, I placed it as a measure to install themes which wasn't zipped properly. Most newer themes I see doesn't have this problem, so you can skip it, and jump to step 3.
Using your un/compression program, find out wheter the zip would create one folder (with the name of the theme) and place all the files in that folder. In WinZip, you can find this out by seeing the Path column, each file should have 'themename/...' as the path, eg. the theme orangesmooth has orangesmooth/... in each of the files. If it doesn't (eg. images/... and modules/...) then unzip it with folder information to a temp folder (like C:\TempLS\themes\test1) and read the step.rc file with a text editor like notepad to know the folder name of the theme, in the line ThemeDir "$LiteStepDir$themesfoldername", then make a new folder in your litestep's theme directory with the name of the folder you've just seen (foldername in the example) and unzip it to that new folder. Now go to step 4.
3) Unzip, with folder information (known as 'Folder names' in WinZip), to the litestep's themes folder. If you took the default installation directory with using the installer, then unzip to C:\litestep\themes
4) Read the readme.txt of the theme. You don't have to edit the main litestep step.rc (C:litestepstep.rc) because you'd be using lsts.exe to do this for you. The theme may require you to install a font, or to edit some rc file within the theme's folder. If you need to edit some rc file, use some ASCII text editor like notepad.
5) Go back to your litestep directory and run LSTS.exe.
6) Hover your mouse cursor on the theme name (one the left list) for a second, and click the button 'Edit settings'. Now make sure the path to the step.rc is step.rc, not sdttep.rc. If it's something like sddtep.rc, then click the [...] button beside it to lead it to the themes step.rc.
If you want, you can choose any wallaper for this theme (the theme author may have included his/her own wallpaper in .../themes/themename/wallpaper/ folder).
7) Finally, single click on the theme's name to switch the theme.
Everything should go well. If it doesn't, use the litestep menu ctrl+alt+f1 to run lsts.exe to choose your old theme. Now:
-Make sure the directory structure is right. The theme ought to have one folder of their own in C:\litestep\themes
-Check the readme, the theme may be operating system specific, or resolution dependent.
-Update your build to the latest at:
http://indiestep.sourceforge.net/