Con #3 is my concern too :P Haven't tried it myself yet. I think you could find a way to bake floaters, but it might require custom baking code/tools. This could be a big thing for content generation, I feel. You can just freely "paint" detail into the map. It also opens a lot of doors on the code end for dynamic effects;…
The normal map pipeline is very well established and gives the best results today, but like perna says there are tool chain issues and people are still screwing it up, in both art and code. A lot of guys are old pros at making normal maps, so much so that it must seem easy. But I think there are a lot of hardships there,…
If it were more feasible today (better hardware support), I'd consider switching to this technique just on the engine end of things (pre-converting normal mapped assets to use height maps behind the artist's back). Then one would have the code advantages without having to convince the artists to do anything. It occurs to…
Theory meets practice, and practice wins (the math works only in theory and with continuous functions). EQ and perna are right for the general case - normal maps can't capture vertical surfaces, so anything with a ledge perpendicular to the surface isn't present at all in the normal map, and therefore isn't taken into…