Yes! Frank delivers! Awesome concept art, as always. The ideas presented here are awesome. I think the main issue (as I think was mentioned before) would be the addition of structures like this in a procedural generation. Static maps, no problem, but adding these types of structures procedurally during map generation seems like it would be one hell of a task to accomplish without some crazy terrain glitches or shit being created that didn't really make sense. That being said, I'd love to see things like this in-game eventually.
Its entirely possible, think of it like this, you have a flat map then you deform it creating mountains and hills, valleys etc, now these deform a flat map making it go upwards and downwards, now if you can make the map deform to make a high mountain by manipulating the polygons then you can do the same to make holes to fit in the sunken buildings. its just a matter of telling the game to find a nice place that is flat, and large enough to fit the sunken building so that it can place it without messing things up, that's the key to adding such structures to procedural maps.
The problem with the caves is that they have added a floor texture in the cave, this is confusing the floor texture that's already there on the map therefore causing a bug in the building process. It doesn't know which floor to build on. So it builds on what ever is closest to your choice. I also suspect its having problems deforming the ground map to its shape.