The shadows are generated through Lite-C with a cuple of c_traces and saved as a .tga file ;\)
The Inn uses the same shading but no shadows :P It looks just different because it is indoor and because it wasn´t me who designed the level (but just to let you know, we still plan to go on with it :))

Lite-C Tut. 1 Lite-C Tut. 2 Lite-C Tut. 3 (en)
Shader Tutorial (ger)

http://www.slindev.com