I plan to have vehicles and characters sustain visible damage in my games as well, overlaying "splotches" of damage textures (appropriate to the type of damage inflicted: cut, burn, etc.) on the base textures, and thus no need to use multitexturing per se. I've tried a simple test:

By using masked (or maybe alpha-ed) textures and applying them to the appropriate location of the base texture, I expect that pretty realistic results can be achieved. For example, if a character's right arm sustains a burn in the game, a burn texture is applied to the right arm area (the coordinate range of which has been determined beforehand) of the main texture.
SetBuffer TextureBuffer(Item\Texture) Color 255,0,0 Rect Rand(TextureWidth(Item\Texture)-30), Rand(TextureHeight(Item\Texture)-30), 30, 30, True SetBuffer BackBuffer()where Item\Texture is the handle of a model's texture returned by LoadTexture(). This puts red rectagles on the model at random:

By using masked (or maybe alpha-ed) textures and applying them to the appropriate location of the base texture, I expect that pretty realistic results can be achieved. For example, if a character's right arm sustains a burn in the game, a burn texture is applied to the right arm area (the coordinate range of which has been determined beforehand) of the main texture.