This is a little straight forward tutorial assuming you already know how to model, how to use Zbrush and the basics of messiah.
I started out in modo with a simple plane divded 6 times with (shift+D). I then used the edge tools to divide out the edges. I kept the modele symmeterical the entire time. I then used edge extrude along with element move and element fallof to position the points… I unwrapped it planar on the Z-Axis. Exported an Obj.
Brought this into Zbrush, painted the displacements with the standard brush tool and then exported a 1024X1024 displacement map. Make sure when you are working this way you either save a morph target out at the base and use smooth UV.
Brought the data into Messiah animate, thisi is where the forum helped. I tried several different ways with all sorts of bones with springs (it all worked, every solution). I just wanted to come up with one on my own. The method below used 2 metaeffectors stretched along the Z and Y axis. I simply stretched a bone the distance of the curtain. The key thing here to remember is that the 2nd metaeffector has a very high decay amount to give it more influence and maintain rigidity. I have self collision on with friction set a .005.
This was fun and simple and all in real-time!
Edit: I forgot to mention the final output to this is flash. I cannot show screen shots of what it looks like because I am under NDA with Electric Rain.

Anyway, if you can show us the LW preview that would be cool, I want to see how your solution came out.