Thanks, I thought of going the option 2 route because that's what I saw everyone doing in the videos. Atleast for the parts of my model that were baked in xNormal, I didn't notice such a huge increase in the quality of the model when I added that normal map in UDK. As you have also pointed out, I'm already using another…
Well... as I see it there are a couple of alternatives that could get you where you want. Option 1 is probably the easiest and makes the most sense. You could just bevel all the edges out and fix your normals that way, and then use the tilable normal map that you generate from the height-map you painted from your tilable…