I would always have gravity applied to it then make a special rule for when they are on the walls.
I think you mean LOD so the further the terrain is away the lower poly it will be, i am not sure if the free lite-c will do is but i think it will.
As far as i know without WED you will have to place the objects by coordinates, but you can get a 30 day trial of gamestudio which has WED in it.
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