Quote: Is it possible to define a bmap, draw to it during the game using pixel_to_bmap, convert it to a normalmap, and then use it in a dot3 bump mapping material effect?
It should be. But i imagine it would be very slooow.
Quote: Is it possible to convert a bmap to a normalmap, and then draw to it?
no it's not. At least, you cant draw to it and preserve the normals data.
Quote: what exactly is the difference between "material effects" and shaders?
material effects can use either the fixed-function pipeline or vertex and pixel shaders. Shaders are just the programmable part of the material effect.. you can have a material without any shaders, but you can't have shaders without a material.