Hey...I'm at work so I don't have GE handy at the moment to give you the specifics, but I got my sprites to animate by having each frame of animation arranged in a folder as separate files that were numbered sequentially (they were numbered as frames rendered from a 3DS Max animation.) It was a few weeks ago when I was fooling around with the program but I think there was a button to have it do that. While I am used to making sprite sheets to give to a programmer I was able to just use the separate files so you might want to play around with that, make sure that all of the sprites are the same size if you do decide to separate the sheet though.
Sorry I couldn't be more specific
but I hope that helps...