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Nice. I seem to recall the SNES game Yoshi's Island (1995) doing something like this, but only with the backgrounds. This is the only relevant screenshot I could find: http://playingwithsuperpower.com/super-mario-world-2-yoshis-...

I'm not sure just from that screenshot that there is any real dynamic lighting/normal mapping. It's surprisingly difficult to tell, but I think they might have just blended radial gradient over the top of a darkened level background. That it is so difficult to tell is probably a testament to how well they've applied that effect!

Notice the color shift from pain-red to yellow/purple on the bricks where they're better-lit.

As far as I can tell, it is indeed a simple radial gradient--but then the results of the layer-multiplication are put through some sort of palette-lookup function. I imagine it'd work sort of like palette-based animations (http://www.effectgames.com/demos/canvascycle/), but with the luminosity of the "light" at that pixel-position serving as the "frame number" of the palette.

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