I'm working on a fully dynamic sky system. It's far from finished but I couldn't resist uploading a teaser screenshot:)

The system simulates atmospheric scattering, i.e. the effect of sun light scattering in different directions as it hits particles in the atmosphere.
This is what makes the sky blue at noon and red at dawn.
The method is described in this paper.

The sun in the picture is not a skybox or a billboard. It's a direct result of the scattering simulation!

I'll get back with more info as soon as I get this working perfeclty.