>>67
The engine can do it in the sense that you can use models, and these models use straightforward shadow mapping. In the iPhone demo it looks like some kind of blob shadow, or some very low resolution shadow map on the characters. Since I didn't see any trace of self-shadowing or shadows on uneven surfaces, I'm betting on blobs.
However most of the lightning and shadowing is static by design. That's the engine's strength. Apart from unique texturing, it allows stuff such as proper radiosity that would be too expensive to do real-time.
I don't really know what you are trying to imply with "they are almost certainly normal-mapped". It's not unusual to use different methods for the world and models, and everybody uses normal-mapped models now. Normal mapping does not require pixel shaders; Doom3 worked just fine (image quality-wise) on a GeForce2 (with bump&specular), and several games use bump-mapping on the GC/Wii.