can you post some screenshots of the "explosions"? you must be doing something wrong.

gamestudio and its editors don't support smoothing groups. this only is a workflow issue though and shouldn't be a big problem. with gamestudio it's the job of the importers/exporters (or the modeler if the importers/exporters don't do it ) to split vertices at hard edges. this is the way directx needs the mesh data anyway. you shouldn't weld the vertices again if you don't want to lose the hard edges!