Well I'm not using level-blocks in WED. I'm only using models for my whole levels. (some models have static-lightmaps)
I didn't test it, but I'm pretty sure just setting the LevelBlock's material to the lighting-shader won't work.
I've never written a shader for level blocks, but I think they work different.
If you want to use LevelBlocks you have to use the standart lighting.
The default engine lighting for level blocks shouldn't be that bad.
by looking at specBump.fx it seems that blocks have their normal map on entSkin3 instead of entSkin2. Maybe creating a variant for blocks where the color map alpha is used for specular and entSkin3 is used for normal would work properly
edit: I could get it working in blocks by commenting the define on line 13 (#define SPECULAR_ESKIN3) and in line 77 (inside NormalMapSampler) changing Texture = <entSkin2>; by Texture = <entSkin3>;
Now if the shader could use color map alpha for specular it would be perfect
