Heh... your example looks like it's part of the background image... hence it won't be affected by vertex fog.

However... this does sometimes occur with world geometry too. Especially if it's translucent in any way. Translucent polygons have never sorted properly, and a lot of times if you get two translucent polys drawn on top of another, the back poly will appear to draw in front of the closest one.

I've bitched and moaned to many a programmer about this... It appears to be a glitch that isn't going to be addressed by hardware anytime in the near future.

EDIT: By the way... did you ever figure out your last problem referenced above? Last time I tried to play Unreal2 I was reminded of your problem, but could not reproduce it...