Hey again brisck1,
So I did some extensive testing and my assumptions about your issue were correct. What you are encountering is expected, as the density per component relative to the lightmap resolution of each instance within that component, are what comprise the overall limitation. As proof of this concept, I took your test example and changed the density of painted instances per component and rebuilt using different Lightmap Resolution Overrides.
There is a reason we have exposed the Lightmap Resolution when painting foliage instances, and why 8 is the default resolution. There is an understanding that users will want to paint these foliage instances fairly densely, and having it fit within the required lightmap resolution limitation with the default lightmap resolution (usually 64) wouldn’t be manageable.
Above you can see my landscape size 8x8 components and the overall resolution. This helps give you an idea of the density per component.
16 Lightmap Resolution - 1024 Packed Lightmap Resolution
Now you can see how I am getting the same message you are reporting, using the settings outlined and mentioned.
16 Lightmap Resolution - 2048 Packed Lightmap Resolution
Here you can see the message has been cleared after increasing the packed lightmap resolution.
All in all, I do understand what you are reporting, but you are simply overloading the allowed resolution per component. This is why we have techniques like Cascaded Shadow Maps and Distance Field Shadowing to help blend to crisper shadows while keeping the low lightmap resolutions at far distances so they are less noticeable.
Cascaded Shadow Map Transition Example
As you can see in the above gif, I have set up some the cascaded shadow maps to essentially transition cleaner and hide the low quality lightmap/shadowmaps up to a certain distance.
Your issue is all going to come down to the platform you are developing for, and the techniques allowed per platform. If you want to use fully static lighting for an outdoor scene like this, you will have to work within the limitations of that lighting mobility type, which includes the lightmap limitations for landscapes.
Thank you,