Gouraud shading

#1 Nothing prevents it--it's simply not done for you. Torque expects the artists to provide exactly what they want rendered, without assumptions that the engine is going to turn something into something else. Turn it around--what if you wanted an 8 sided object rendered, and the engine annoyingly always smoothed it for you?

#2 In your modeler, you need to setup the smoothing groups is all.

#3 If I remember correctly a post-mortem of Marble Blast mentioned they used Gourad Rendering. I cant give you anymore details than that unfortunately.

#4 Almost begs to have shading as an option then on a per item basis. Just looks ugly is all
I guess I can have the models done with higher poly count but then there goes frame rate...

#5 Something to keep in mind here--this thread is confusing two very different concepts: Shape smoothing (geometry modification), and rendering modifications (gouraud shading). The two really have nothing to do with each other.

#6 Assuming the pipe is a DTS object, you must average it's normals to get gouraud shading. Your DX engine is obviously ignoring vertex normals and forcing an averaging. In 3DS MAX it's called smoothing groups, where you group together the polygons you want to average the normals. In Maya, just select the shape and use the Average Normals or the Smooth/hard options in the polygons>normal menu.