Textures only interfere when using the "Set shaded vertex color" option. When you use this option, Blender applies lighting and material color to the vertex. Since your texture affects the material color, Blender will apply light and then mix it with the texture value on this vertex.
In Plasma, this results in the texture being colored with a color that is close to its average color (for instance, a blue texture will look even blue-er and also a bit darker)
I also noticed another issue with not disabling textures: the color applied to a vertex is the one of the pixel uv-mapped on top of it. In other words, if you have a blue texture with 1 red pixel uv-mapped on a vertex, the vertex will be red, coloring the texture around it red. It doesn't look really good.
When painting directly on your vertices, however, neither lights nor material color have any effect.
What I do in most of my test Ages, is setup the light using only the Blender render. Then, I use "Set shaded vertex color" to apply lights to vertices colors (which removes any existing color on the vertex col layer). After that, I use "Self Shadow VCols" on specific objects, which applies AO on top of existing color. Finally, I re-enable the texture if I have any on the object.
Texture paint is more efficient because it doesn't use the vertices but a texture to register all these infos. Lightmap baking is basically automated texture paint.
Vertex light is tricky to use because of the number of vertices required and of smoothing groups. In later versions of Blender, you even have to make sure it works nice with shadows. When baking AO, you also have to watch out in case you're using an edge split modifier, because the script doesn't work fine with it.
But if you can manage all this, you can have very interesting lighting, like you'd see in Relativity (best example around, if you ask me).
Here's an example of baking vertex color in Blender 2.6. It's slightly better because it can also handle shadows. The scene is just a simple canyon mesh with buildings on its sides.
- tmp-vertex.png (317.08 KiB) Viewed 2318 times