Hi Xanen,
You wrote, “Without breaking the vertical capsule restriction, perhaps the [way to] handle this is to detect overlaps on the other collision components and attempt to push the character away yourself.”
I agree this is another way to achieve collision for a character that does not fit the capsule exactly. My response was for a player character setting the collision (in my example, “punch collision”) to “block all” as well as setting the collision of the meshes the character interacts with.
I am not using a physics assets in the illustration above but adding collision to the wrist bones. In case of a wolf or dog I would add those the head and tail area. (btw in the illustration, I realize the capsule is wrong… in that case the character would fall to the floor until it reached the bottom of the capsule.)
So this is the easiest way I know to compensate for the capsule not being able to extend horizontally without using code. Your solution would work as well and I’m sure there are a few other workarounds.