Similar to what lightmass does right? Creating a grid and doing directional samples of the indirect illumination. Also I had noticed that UDK has a default falloff exponent of 2 for its static lights. Things seem to be in order, Am i misunderstanding something here?
Linear and quadratic and other kinds of falloff won't be important things to worry about until ray tracing and ray tracing-based radiosity calculations start to be done in realtime in games. That's when games will actually start to become photorealistic, and that's when we'll need to start to worry about representing…