The grass has a 24bit texture and thus no alpha channel. I suggest you export the texture and add an alpha channel in the paiting program of your choice (you can try to use d3d_autotransparency but this won't give you the best results).

The level is still missing your code file and the rest of the textures, so it's a little difficult to reconstruct your problem. I can see that you have checked the detail flag of the block on the ground, IMO you shouldn't use this flag it all. When I press F11 twice in the engine there is a small effect of bumpmapping visible, but it seems a little flawed. Additionally, the two default bumpmapping shaders only support a maximum of three dynamic lights (that includes the sun light) so you already have too many dynamic lights there.

I will try to set up an example for you tonight, but I have to say I don't really have much experience with normal maps as I only use them for a few special effects such as water, heat haze and the like.