Thanks for the response Vassago - I did some searching and found: http://boards.polycount.net/showthread.php?t=63499&highlight=Floating+Geometry Seems the best way is to bake two separate AO passes, one with the floaters turned on, one with them off. Then composite them in Photoshop. Then you can make a diffuse pass with…
To be honest I really have done next to no "next gen" work. When I have actually baked AO with floating bits, I usually just hand-paint out the errors on the floaters. Someone with more experience might be able to chime in on this. I certainly don't know many tricks of the trade when it come to normal mapped assets.