Update to this issues. It appears we have a trifecta of problems occurring.
Problem #1
When using HISMs or HLODs, after creation of the HISM/HLOD the original assets can be (and are) hidden in game and editor. While this is great for iterations, the engine is still generating lightmaps and calculating shadows as if the object were unhidden and visible.
Problem #2
HLODs/HISMs do not support unique static lighting for Mesh LODs. More specifically, lighting on LODs 1+may be incorrect unless lightmap UVs are the same for all LODs. We’re observing that when assets are combined into ISMs, the ISM’s LOD inherent the base meshes lightmap, often causing major shadowing of the entire ISM. AKA, visually it looks terrible (reference screenshot above).
Problem #3
It appears that when we import custom LODs for assets (often necessary to fix shading artifacts associated with normals or tangents), by default the “Generate Lightmap UVs” in the build settings is toggled ON. After importing the custom LOD, it regenerates entirely new Lightmap UVs for the custom imported LOD.It appears there’s a direct correlation between the new Lightmap UVs and LOD switching; in particular, moving the location of the LOD Lightmap UVs and their position on the associated Lightmap.
In summary: we can solve the issues with Problems #1 & #3, however, we have yet to find a workable solution for Problem #2 that allows us to still use ISMs and have baked lighting.