I have the same issue on 5.3. But can you elaborate on your kitbash3d method ? I’m just trying out the free assets for now and noticed that most of them do not accept nanite, even though I enable it on all static meshes. Some are fine but some are very weird looking, like a really low-detail LOD and some parts even disappear completely.
Why are you mentioning replacing the materials ?
I’m just curious because I want to know if I can find workarounds and make it work with Kitbash3D assets or simply look elsewhere.