Is PLSM2 is a good choice for me?

Hi!

I want to make huge urban environment in my game (like in Vice City). And I want to mix cityscapes with landscapes. Is it possible with PLSM2? Can it handle modelled environment, or it's designed for terrain only? And does the occlusion culling works with the modelled environment?

You can embed DotScene environments into the PLSM and this would be perfect for what you've described!

Do I need the DotScene plugin from OgreAddons, or I can embed the standard XML-based DotScenes exported from Blender?

The DotSceneOctree plugin from OgreAddons has nothing to do with regular .scene files.
The DotSceneInterface plugin is not needed either.
Use a dotscene xml parser, maybe the one madmark wrote? From OGRE Wiki?

I want to use Madmark's loader, but I don't know is it possible to embed these XML-based scene files or not.

Absolutely, that's what it does! It loads the entities from an XML file!

Cool, thanks!