So I found a way to bypass most of the normalmap compression artifacts that you get from using UDK. I started using BC5 normalmap compression however, the normal maps lose their Blue channel so I had to basically restore it in the shader.
Here is the solution by the way (EDIT: For material instances, if you have a base material and a BC5 normal map plugged in, you don't have to do this solution, but since most of us use material instances for our master shaders, this solution will be required), to be able to use BC5 compression in UE3/UDK
I'm just a tiny bit worried that I'm spending a lot of time on this and then next week UE4 or something is going to land on my desk. Then I'll start the new project in that insteaad. Haha, oh well.
Here is a shot of my current progress, just tweaking my master-shaders and adding all the functionality I want whilst I'm doing some basic texturing.