Adding them with the '|' is ok, but Ive sometimes seen it not work if there is any spaces
between the flag names and the '|'. eg VISIBLE|CAST = ok , VISIBLE_|_CAST = bad.
But only sometimes...

You didnt clearly answer if you are setting the new material to the terrain too?
(no shaders on the terrain I assume) And remember this is just for testing at this time.

Have the material changes youve done so far made ANY visual change? If so, what? (screencap?)

Havent got to looking at sprites yet. But check that they're pan,tilt & roll are all zero.

{EDIT}
Done the checks, My bad again, has to be pan=0, tilt=0, and ROLL = 1 to get above alignment on sprite.

Also be aware, having an alpha channel in the texture of your entities,
most commonly done by using TGA textures, causes lighting issues I cant explain,
because I havent figured it out yet. Im leaving that Brainbuster for another day.