as ched said, main thing is editing the texture. second to do is finding a good shader (as disturbing said), the ps2_0 bumpbone.fx is not that bad. take a look at the models in the OUTLANDERS pack (dont remember who does them), they are very nice in low light areas, so it seems to be a combination of shader and model. main thing is to setup your lightning and character-ways propperly (main thing is to use lights as small as possible, as big as neccessary).
characters are (mostly) not affected by light below around knee-height, try around with a row of lights and char following waypoint through them.
thats all i can say, i totally dropped using lights in my project except for special fx^^.