People have been asking: why built-in shadows don't work on Unity's terrain? (here, here, ...) Yes, right now (Unity 2.0.2) they don't. Why - because we didn't have time to make them work yet. Both terrain and built-in shadows are new features in Unity 2.0, and those two don't happen to just work together.
Here's a glimpse into what is needed to get it working.
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