The grass shader only works if you put the meshes into /grass, otherwise buildings, rocks etc would move too, so it's fully possible to use the Mesh Generator for rocks, or trees or whatever
The problem with adding little rocks all over the place is that you either have to remove clipping from them (looks ugly when you / creatatures / NPC's clips through them) or you leave collision on and you and every NPC will get stuck all the time.. You can make the rocks extremely small and remove collision to make it less obvious that there's no clipping, but imo (i've tested this when i did the groundcover mod) it wasnt really worth the FPS hit. ...and its still ugly when the feet clipped though the rocks.