there is this app in the market place   http://www.renderosity.com/mod/bcs/morphing-clothes/64629/     it isn't perfect, but i have had some success with it.

as to dynamic, it depends on the original model as to how well it will clothify. some conforming clothing and models clothify easily, some not so much. if it has seams after you make it into an object, you need to make the seams a part of the soft decorated group, and make sure when you export it to an obj, you uncheck everything, except weld body part seams if its applicable.