There are solutions for this - as already mentioned I think, which are very slow - For skin, I have used a technique that delivers pretty good results and is fast. I don't know how you would do this in a shader, but the idea is to render an illumination pass, blur it and include this as part of the lighting solution.

The effect that you are going for is to soften the transition from light to dark (known as the terminator) (ah'lll bee bakkk) The darks should get as dark - and the lights as light, but it is all much softer.

Another effect that skin exhibits is that color get alot redder towards the shadowed side of the image - which is pretty easy to accomplish with falloff maps. (this is caused by the fact that we are basically blood sacks)

skin is definately tricky. Candles and the like are a bit different, as they are light sources and the effects is much more pronounced - although this technique can produce nice waxy effects.

There is alot that can be done with lightmaps.