Epic Games have released an updated version of UDK which you can get at www.udk.com/download or from BeyondUnreal FileWorks (530MB EXE).
Here’s the change list:

Improved UDK Features and Tools

Decal improvements

Lit translucent decals are now supported.

Allows much better blending of decal edges into the environment.

Shadowmap support for decals

Works for both static and dynamic shadow maps and allows […]