The shadows are part of the same tiles, yes.
The tiles are much larger in this case, yes. Some are twice as large in both directions. Some are twice as wide and three times as tall. Building in pieces is still necessary so you can get houses connected in different ways (rather than just rectangles) as seen in the image, but the whole bottom is in three pieces, Left, Center, and Right, as is the middle and top.
I have since moved different groups of images to their own tilesets, so it's not possible to have this on the same layer as trees and rocks, or on the same layer as fences (on their own layer). This is one of the reasons I wanted the ability to use solidity information from several different layers all at once.
I never thought of the ability to have the insides on the same map as the outsides. I was always imagining the inside on its own map like in most older RPGs (thinking Final Fantasy here).
Gotta go to class now. Talk more later.