Ironically, I am not that familiar with UDK, but is that 1 mesh? I doesn't look like the clothing is casting a shadow? Maybe that mesh isn't set to cast shadow? Did you disable shadow casting by material? Did you rebuild lighting?
Is that a character made in Daz/Poser? I tried doing the same thing a while back, and the results can be pretty interesting. All you have to do is reduce the polycount like crazy. You DO usually have to do a lot of texture fixing though.