Quote: "The thing about using a pre-lit setup like Jon's is that in game engines that use dynamic lighting will look unrealistic in some way."
Well obviously.
Thats the whole point of baking it into the texture, its fake and meant solely for ambient lit environments, not dynamic lighting.
Quote: "Basically my technique is just place a skylight in the scene(make sure it's white in the intensity options), Give the object an all white material. Go to render settings in the dialogue set the mode to catmull.Enable Light tracer and set the bias to 500."
I think you just mean Ambient Occlusion, which is something most people would be generating before, for use when making the texture.