Right, that sounds vaguely like what tes4lodgen does. What I was getting at was wondering if the process is entirely automatic or does someone need to create distant view resources first. If making _far.nif files is not necessary at all, then the Holy Grail of LOD has been in front of us all along.
That is what I was trying to convey, the process is entirely automatic. MGE doesn't care which tree replacer, which rock replacer, which texture replacers you have installed. It will find them in /textures/ and /meshes/ (or in Morrowind's BSA if you have no replacers) and translate them into low resolution/low poly variants respectively for MGE's distant land. That means that MGE's distant land feature is full compatible with all mods, retextures and mesh replacers forever.
Not quite the same as LODgen.
Well that's about the coolest thing ever. Which brings the next obvious question up. How hard would such a thing be to accomplish in OBGE?

I guess that warrants asking in the OBGE thread.
You might be able to do something similar but I doubt it would be as easy as just porting the function. I think you'd probably find the .dds and .nif reduction algorithms useful, though.
Actually, I've been hoping for an MGE style implementation of distant land for OB for quite a long time. It would, in my head, work the same as Morrowind's; so you'd have to disable the in-game distant LOD for OBGE to use it's own.
Of course, it might be possible to somehow build on TES4LODgen somehow? It would need to be able to scan the /meshes/ and /textures/ folder and then it would need to be able to reduce them for the _far versions. Since MGE does all of this automatically I don't see where it would be impossible.
And yes, Oblivion is weak in distant land. I enhanced it like http://img97.imageshack.us/img97/9211/90654703.jpg, but to be honest, I really don't understand what "shadows" you mean.
Perhaps you can post some good Morrowind distant land screenshots?

He's talking about shadows like in http://img88.imageshack.us/img88/1912/mgescreenshot17.jpg screen shot. You can see that the statics are casting long shadows because the hour is late. In Oblivion (and Morrowind before MGE XE came along) only 'actors' could cast shadows. 'Actors' are people and monsters. If you play Oblivion, you will notice that buildings, for example, don't have shadows. Trees have 'canopy' shadows, but the method in which they are casting shadows on the ground is somewhat faked.
http://img714.imageshack.us/img714/8317/mgescreenshot4.jpg is a good example of Morrowind's distant land. In fact, it is an extreme example; for this screen shot, I have generated distant land so that absolutely EVERYTHING (besides actors), even the smallest rocks, will appear even when distant. Indeed, if you look at the Vivec cantons you can see that even the small lanterns affixed to them are being drawn to distant land. Everything you see in this screenshot is distant land, absolutely none of it is being rendered as it would appear near to my character.