As I said in the PM:
You either disable damage entirely in the Graphics Options.
Or, as explained in more detail above (in the comments) in the ship file in scripts/ships/
In the LoadModel function above the line:
pLODModel = App.g_kLODModelManager.Create(pStats["Name"])
Generally speaking, it are the values 4 to 7, seperated by comma (,) of each "lod" (AddLOD line).
To add some extra info, (though it's all explained above that section), the first is the nif, the second the "PickLeafSize" (I suppose that has to do with some optimalizations, if you have a small ship, then I suppose you could turn that down), the next parameter is the "switchout" distance, with 0 being directly in the camera, and progressing outwards, in game units.
And now we get to the relevant bits here.
Parameter 4 to 7.
4 is the Surface Damage resolution, if you have a complex model, you might want to turn this down (or up, not sure, you will have to experiment, but this is actually for everything I say here, they are mostly based on applying logic based on names), it will save you some slow downs. This value is mostly used for the "scarring" or "burning" and is on the outside.
5 is the Internal Damage resolution, similar to 4, except for the internal parts (inside the surface). On a small, and simple, ship, you might want to turn it up so that it won't blow everything away on the first hit. For example, I believe on the DY Borg Sphere, they turned this to 0 to turn off damage, because it caused some major slowdown (complex ship).
The 6th is the burn value, it defines how fast something scars/burns.
And the last of the damage related values is 7, the Hole value, or how fast a model recieves "structural" damage.
The rest are for the glow suffix (for example "_glow"), the specular "search" string (for example, define "_spec" if your texture ends in "Something_spec_glow.tga" when it's both the specular and the glow texture). And the last is the specular texture suffix (for example, "_spec"), the difference with the search part is that this string needs to be on the end (but before the .tga).
I hope this helps.