The bulk of the map is made of "brushes", which are chunks of geometry, not models. These 'bricks', if you will, can vary greatly in size and shape, within certain limitations. The primary problem with damage-staging is that many of these brushes can be quite large; a basic house can consist of just 4 brushes regardless of its overall size. Such a wall brush may span 10 or more spaces on the game grid, and having such a brush 'degrade' all along its length from damage sustained at a single point looks clumsy and cheap.
There are two foreseeable solutions, but each presents its own set of problems. Breaking down the larger brushes into smaller pieces multiplies the filesize and processing demands of playing the map well beyond the goals of this project, and possibly to unplayable levels regardless of hardware ability. Deforming brushes on the fly would require some fancy coding which would open up whole new cans of worms, still has the shadow/pathfinding hiccups, and may also scale processing demands beyond the project's scope. Thus, both are out of the question, barring major breakthrough down the road.
Look at the cover/concealment thread. There are ideas for a system of projectile-pass through of brushes and such, which may allow for a fair amount of realistic-ish through-obstacle combat.
