Quote - > Quote - ... that's when IL washes out the AO and oversaturates the character.

Possibly you missed this point: using IDL does not 'wash out' the light-based AO, it switches it off completely. It's no surprise you can't see any AO in picture #3 - there is none.

I agree, picture #2 is superb. 

I suspected as much.  Still, even if I applied material-based AO, #3 would still look a little too Oompa-Loompa-ish for my tastes.  Further testing shows that the settings which produced #2 yield similar results on a consistent basis, so I think I'll stick with what works...at least for now.

As another example, here's a nude shot I did of V4 using only BB's Environment Sphere and one infinite light to simulate the sun.

In case anyone's interested, the shader that I used in all three test images and the gallery image can be recreated using this tutorial.  The advice given on lighting doesn't apply to P8 when using IL (there's no need to change the Diffuse Strength of each non-IBL light), though, and I'll probably add a "P8 Update" page soon.

Thanks for your comments!