AO is part of the Advanced Render Module so I have to ask, do you have that module?
I don’t think you have to have a sky for AO. You need it for Global Illumination.
When faking AO or GI I find using an array of 4-7 lights over each element in the scene in addition to a single omni (w shadows) in the sky. (Non of these would be set at a high strength.)
Try setting your shadows to soft and if need be use negative lights in places to remove unwanted high lights. I have seen really great renders with out AO or GI so long as you take the time to light.
Good luck
/Randy