for shaders, models are definitely the way to go. level geometry sucks. maybe a7 handles WED blocks differently now, and it's better, but i wouldn't know.

there shouldn't be any problems combining terrains and model buildings. the polygon-flag is your friend

personally, i'd use models for terrains (not easy in MED, but for example blender's retopo tool and a subdivide should assist) because they can make more accurate representations of the terrain curves with fewer polies (a curved plateau made out of a .hmp looks awful without having a relatively high polycount).

that's all i've got

hope it's helpful

julz