Check out mudbox, its pretty much a sculpting app with photoshop built in it. The stencil system in it is extremely powerful. Its also the easiest one to start with.
In addition to the Unity example, Unreal uses a similar, automatic voxel grid system for lighting dynamic objects from static bounces. Here's the docs on it for UE3.
You dont model powder you texture it or create a shader. You could create a particle system too if animating but that would be overkill for a static render
Yeah but is it the same system as with Forza 2? I mean I want to paint in photoshop and upload to my profile. Now that would be amazing and totally new.