The MD2 folder has to have the .MD2 model and the .PNG image. Without that image, the MD2 will use Sonic's sprites all glitched up.
But your problem is that you can't see him. So if both files are in that folder, then check your .DAT file. Open it in Notepad, and check the size of the model. The size is the first out of two numbers there. If the model was made tiny, it will be too tiny to see in SRB2. So if the number is 2.0, make it 10.0 or 70.0, and check again.