I'd hoped that with half-hour blocks as afforded by 48 timeblocks it wouldn't be so jarring, in that the time of say 3AM is very much like that of 3:30. (Unless your sunset is at that time, but I don't think Steelport is anywhere that far north). However, when I think about it, the problem is the specific transitional points from light to dark where the sky would dramatically change over a shorter period of time. Maybe it could be spread out, so most of noontime and nighttime are only two or three blocks apiece, but the actual sunrise-sunset is say 12 blocks to itself each? Again, I'm not sure how much overhead this'd throw on with the game having to recalculate the sky every minute or two...
And then if you throw in the transitional periods.. how fine does the game auto-generate said transitions? Is it a transition in a hard-coded setup, or is it somewhere between the nearest two defined states? Is it possible to have the game auto-generate enough precision to approximate it? Does it only allow 48 blocks or is that only 'pre-defined' blocks and it can auto-interpolate more on its own but can't be defined?
Eh, I think the problem alone is why Volition didn't bother.. sure they should have done it from the start (my guess is "We couldn't make the lighting engine do it" meant "We couldn't make the lighting engine do it on consoles that are well past their prime, and maybe lower-end PCs, but higher-end can cope fine") but doing it later would have been more work than it was worth and they just wanted to ship the game.
Alas.