Shadows on heightmaps!

First, this is a fantastic framework and one that I have learned a great deal from.  I'm new to 3d programming, so this might be a stupid question.  I want to show shadows of my characters on the terrain.  I first used a directional light, but the light from it washed out the terrain's colors.  So instead, I am trying to use a blob projector to simulate shadows by attaching the projector to the heads of my characters and pointing down on the y-axis.  This works great except for mountains, hills, or anything that has a heightmap higher than ground level.  I thought maybe the issue was that Honey Hex's shaders prevented this, so I tried it with a projector shader that was posted early on in the Honey Hex forum.  This again projected fine on the flat terrain, but not on any mountains/hills.  Is there a way I could get blob shadows to work?  I am just trying to blend my characters in better with the terrain.  I have enabled Ambient Occlusion in the scene's lighting settings but it doesn't seem to work between the terrain and the characters. 

Perhaps I could somehow use a marker as a blob drop shadow and have multiple markers "follow" characters?  I'm not sure how I would go about this.  Any help would be greatly appreciated!