Is it the case that in the majority of games the AO map is combined with the diffuse? It seems to create a similar effects when combined with the diffuse and it of course uses a lot of resource to dedicate the AO to it's own texture. I seem to be seeing a lot of other artists texture work that indicates it's combined with…
A lot of people combine it with the diffuse. When it is used as it's own texture, the difference you'll notice is that there will be no occlusion when light is directly hitting the surface (as really it is supposed to occlude ambient light, not direct light).
It's often combined with the diffuse, though it can have advantages to keep the AO as a separate file. In this example, I used tiling textures without any shading in combination with a lowres map to get nice shading and detailed materials. And I could also use the AO to blend some grime in the crevices.
It varies based on the game and company you are working at. There are 3 main ways to get AO that I am aware of. - Baking it into the diffuse - SSAO - Realtime AO that is calculated based on what is visible on the screen - Lightmaps - Either manually or procedurally generated lightmaps for all the static pieces in a level.…
Technically, baked AO into your diffuse is not going to be completely realistic if you're using an engine with dynamic lighting everywhere. For example, if you bake some AO into the mouth of a monster, you can then never shine your flashlight into that monster's mouth and see all the internal details. Though I'm not sure…