Yes this is quite very normal.
The volumetric shadows you refer to are actually called "stencil shadow volumes", consisting of 1-32 bits cached into the z-buffer unit known as a "stencil buffer" for your graphics card's memory to store and process, and is a graphical alogrithim technique of processing shadow calculations in real time(so shadows can cast onto and back upon the environment and occlude/interact with [per-pixel]dynamic lights in real-time). Stencil Shadows are usually sharp edged by default, creating an ugly appearance.
Aesthetically pleasing soft, indistinct edged stencil shadows are feasibile, but not without certain cheap hacks and a MASSIVE
performance expense. It's not difficult to achieve either.
All you have to do is extrude two volumes: one for the inside where the shadow is solid black, and one for the outside where the shadow fades to white. Between the two you interpolate from black at the edge of the inner volume to white at the edge of the outer volume around the silohoutte.
Granted, this will require ~2.5 times the computational power of what's currently required, but it would certainly be a cool novelty and original technique in contrast to the current hard edged, plastic and ugly like looking stencil volumes.
Well that performance hit in stencil volumes is really because of such a huge graphical fill-rate count it requires to spend. Very fill-rate computationally intensive indeed.
As Jedi Outcast is powered by the Quake 3 Arena engine, early in Quake 3 developement it was originally destined to ship with radiosity based specular dynamic shadowmaps (for dynamic lighting) and stencil volumes (for shadows) but due to steep hardware requirements was tooken out.
As for games based
on the Quake 3 Arena engine, not all developers of these games choose to support or worry about hidden graphical options.
So if you plan to enable stencil volumes for shadow rendering via other Quake 3 Arena engine games, you can't always anticipate desirable results(but rather erreneous visuals) due to buggy shadow volume support. Take RTWC(shadow volumes float above the character and stick like a laser onto the environment) for an example. As with MOD, there are plenty of volume rendering errors there as well(stencil volumes not properly casted/placed). As for the Jedi Outcast issue you're describing when enabling stencil shadows, that's ugly but not unexpected.
Next-generation games like DOOM 3 and Chronicles of Riddick make great use of per-pixel lighting, DOT 3 blending, and stencil volumes for real-time lighting and shadowing environment wise. Due to stencil volume z depth pass and z depth fail triangle optimizations, a decent frame-rate and no visual artifacts can come abound in these games with stencil volumes enabled. But what is DOT 3 blending for? Normal and bump mapping, basically, for specular(shiny) and a rather more rough, richly detailed, high-res, and realistic 3D packed appearance to textures without a performance hit.
The TNT+ level of cards support the stencil buffer anyways,(not at a decent frame-rate unless you're talking a GeForce 1 card or higher due to geometry acceleration abilities via HW T & L small engine)