Vertex group painting that I was experimenting with in January, is now finally available for download. I committed it to soc-2011-carrot branch earlier today, so just get a Carrot branch build at revision 37622 or later. You can get Windows builds from MiikaHweb Blender Builds section.
I also uploaded two example .blend files you can use to try out Dynamic Paint's new realtime vertex painting functionality.
This demo shows how to use Dynamic Paint's vertex level color and displace:
This demo shows how to use vertex weight groups to control particle hair length. This one is very similar to the "Grass Worm" video I posted earlier.
One critical component is still missing though. Currently there is really no proper way to render vertex colors in Blender. It's only possible to render one layer at time and only use it as diffuse color. :(
That's something I'm planning to improve later this summer.
Recently I have been working to improve Dynamic Paint functionality and allow painless Ptex (Per-Face Texture Mapping) integration in the future.
This next step is _vertex painting_. Basically you'll be able to select canvas output type. Available options will be vertex, Ptex and image output (current dp). Vertex output allows you to paint vertex colors, vertex groups and displaces.
Operating on vertex level makes things easier in many ways. First of all you don't have to unwrap any UV data or load image sequence textures to make it work. It's just clicking bake and seeing the results. Even displace will happen directly by the Dynamic Paint modifier.
Negative things compared to image textures are limited resolution and rendering options. That's why vertex stuff isn't going to replace current Dynamic Paint but to be an alternative way. Hopefully Ptex will be the ultimate Dynamic Paint solution. :)
I made a small demo of vertex group/weight painting. A grass worm.
In that video grass particle length is defined by a Dynamic Paint generated vertex group.
Please note that this is still in very early stage of development. You shouldn't expect any kind of test versions for several weeks.