either do the wanted lighting calculations with <veclight> and everything taken into account in the vertex shader and pass it to the pixelshader as oD0 or (the easier solution) remove the pixelshader and use the directx settings from the second post of this thread instead:

http://www.conitecserver.com/ubbthreads/showflat.php?Cat=&Number=297998&page=1&view=collapsed&sb=5&o=&fpart=1

should work but i haven't tested this!