That was OK I guess but that's not really dynamic fracturing in the sense I was using it - that models (physics and shadow enabled, of course) will fracture into totally independant shapes - this just scales down blocks. What is more, I made a system like this in 3D: Check the Yoyo Games Wiki for 3D deformable terrain. This gets 8/10 for being a nice, if somewhat specific, solutin.
@ Obelisk: Thanks :)
@ Juju: Yeah, I figured it wouldn't be quite what you were looking for but it's what I meant by what you should add to the engine :P
@ PY: It is for GM7 but I don't see why it wouldn't work in GM6 too... if I converted it manually. It needs pro edition too - in case you don't have that.
@ Mat: Thanks, it could be a pretty nice mechanic for puzzle games.
@ DeserFox: I'll get on that right away.