Most of the games that I’ve seen use smooth shading on the entire mesh, regardless if there’s a 90 degree angle or not. Yes, you do want to accent sharp corners but that’s up to the texturing, not so much the shading method of the model. Don’t let the shading algorithm be the only thing that gives a model depth and sharp accents to folds, creases, and such. Add shadowed areas to the UV texture where you know there will always be shadow. Game artists to this all the time to character’s faces. If they didn’t draw in the shadowing for their cheecks, lips, nose, and so on it wouldn’t look right at all.
Now, if this is going to be a very cartoony looking game (like 3D Mario games where he has only an eye and hat-logo texture), then it order to add creases and such, you’ll probably have to increase the polygon count around those edges that you want to be hard.
I’m sure the method you are talking about is possible. I’ve seen similar things in Doom3 recently, but I’m not sure if Blender can do it. In any case, texturing the model correctly makes all the difference.