Baked Ambient Occlusion and Shadows
I've been experimenting with ambient occlusion and shadows and created a couple demo levels. I made a comparison to show the different ways you can add these effects and how they look in the levels. From what I can see, ambient occlusion looks good with vertex colors while shadows do not. Overlaying your textures with a shadow map can look good but is hard to implement accurately.

You can see all the pictures in this imgur album:

You can see the AO & Shadow texture maps individually here:
First 4 screenshots of 1st link looks pretty like SM64DS

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