The Fix:
Ok, I was playing around with the built in
wibblyrelief shader.
For those whom have no knowledge of it; load up FPSC X10, click open map, then go into the
customeffect folder and open the wibblyrelief test map.
I then set about adding the shader to different media and seeing the effects. Whilst testing a fake wall, I noticed that - though it was dynamic - it was reacting to light properly. After looking at the _N.dds file for it I found out how to prevent the wave effect of the shader from happening! Thus allowing for properly shaded entities!
Here is a screenshot (attached) of it working on a stock crate - all the crates in the screen are dynamic. I will upload a video soon and write a tutorial.
I am indeed pleased
[center]