Well, I reckon it's far easier with old fashioned limbed models - all you need to do is have a second texture covered in wounds, then when a limb gets hit - you texture the limb with the wounds texture instead of the default. Basically with a limbed model you could injure any part of it quite convincingly. Unfortunately it's a bit trickier with bone animated models, because often it's 1 big mesh - but you could use memblocks to alter a texture, like have a wounds texture in the same way as for limbed models, then copy parts of it onto the original texture.
The overall speed of your game would be affected when using memblocks, because when you have more than one instance of the same object, the texture is shared - you'd have to have each objects texture as a different image.
You can do blood stains on floors and splatters on walls in a similar fashion to how you'd do shadows, just replace with a shadow texture. If you've played Jetpac2003, the worms have a shadow, then when it get squished, the shadow is replaced with some guts, which are just scaled up to a decent size - gives a neat affect considering it only took a few minutes to code. Use a negative ghost though, normal ghosted objects look too bright for blood, always go for darker blood colours, the minute blood soaks into anything or dries it goes a much darker colour, I hate bright blood, like in SOF2 - the blood is just pathetic IMO.
Van-B

I laugh in the face of fate!