To have that distance LOD thing, you could have several shadow-only sun lamps covering the full camera frustrum, the more distant the lamp from the camera, the bigger you make the lamp’s shadow’s frustrum size. Not sure how many of those you can make before there is a noticeable impact in the FPS though. Use a copy rotation constraint on all the shadow lamps to keep them aligned with a no shadow sun lamp to keep the lighting consistent.
I’m not sure what would be the best way to keep the shadow lamps in the right place though; parenting to the camera could make them go underground if you tilt the camera down; and if it is just copying the X and Y of empties parented to the camera the shadow lamps would get squeezed together when you look up or down; and don’t forget you need to take the lamps orientation into consideration as well…
Oh, wait, we’re talking about the game engine? Hm, do constraints work inside the game engine?