I'm sort of surprised no one seems to have caught that.
Talon 1024 did catch that the normal map was faulty. I haven't had any experience with faulty normal maps so it didn't occur to me to look at that area. That's why when the new baked map I created worked well, I went off on the wrong tangent.
Enioch
A simple way to create DXT5nm normal maps.
Open the compressionator and select the normal map.

Hit compress, It'll ask what format. DXT5nm is the same as DXT5 xGxR

Then save compressed under the file menu and it's complete. No channel swapping involved.

Down load the Compressionator
http://developer.amd.com/tools/compressonator/pages/default.aspx Two versions x86 or x64
If it complains on installation then you'll need the Microsoft Visual C++ 2005 Redistributable Package either (x86) (x64)
And sorry for the confusion about the baked maps before Talon pointed out the original map itself was faulty.