Ambient occlusion works for PSO2!
For those who don't know how it works, see this article. If you've never forced ambient occlusion on for any game before, note that it has a massive performance impact on lower-end cards; as such, I don't recommend enabling it if you're already having performance issues.
Enabling it is simple:
1. Download Nvidia Inspector
2. When Nvidia Inspector is open, click on the wrench-and-screwdriver button to the right of the "Driver Version" field
3. Go down to the Phantasy Star Online 2 profile (note: it should already be there if the drivers are up-to-date; if it is not there, either create one for yourself or update your drivers)
4. At the top under "compatibility", you will see a field called "Ambient Occlusion compatibility" with a large drop-down list. Don't be intimidated by it and go down to the option marked "0x00000026 (Warmonger)" and click on it to enable it. Alternatively, you can use any of the Unreal Engine 3 bits (Mirror's Edge's is recommended for how well it meshes with the game's aesthetic, though you can also use Mass Effect's, Unreal Tournament 3's, Gears of War's, and so on and so forth, with varying results).
5. Go down to the section titled "Common" and set "Ambient Occlusion usage" to "Enabled", and if "Ambient Occlusion setting" isn't already set, set it to either "Performance" or "Quality" (depending on preference and the performance of your PC) - do NOT set it to High Quality, as your frame rates will drop below reasonably smooth levels, unless you have two high end video cards in SLI.
6. Click "Apply Changes" in the upper right corner. You're done!
You will notice that characters now shadow themselves, as well as make contact shadows on the ground and walls, and areas where light is being occluded will also see some shadowing (most notable on any 90-degree angle contact points, like the corners of rooms). IMO, this is a major improvement as the flatness of the lighting was just driving me bonkers.
Before and after (open them in separate tabs and switch between them):