Decals have access to all the features of the engine's material system and are completely managed on the GPU, so there's no need to involve the physics engine to calculate decal positions for example.
Both 2D decals and volume decals are supported.
The scene in the screenshot I posted is still a work in progress, hence the absence of shadows, indirect/ambient lighting, anti-aliasing and the crude texturing. I'll probably post a journal entry when it's completed.
This is great work man! Love to see what you are doing and how you do it. Do you mind sharing where you found out how to get this to work? We attempted it but got stuck. Thanks again