TextureAtlas in 3d Mesh. Convert Sprite to Texture

i want to use this texture atlas : http://opengameart.org/content/lpc-sandrock-alt-colors

steps: 1) import 2) texture type: sprite 3) sprite mode: multiple 4) Sprite Editor 5) Slice 6) Grid 32x32 7) Apply.

Now i click on the -> Button on the texture, i get 89 mini textures (don't know how they are called, let's assume sprites).

Bug 1: Unity doesn't allow me to drag / drop these sprites on my cube, nor a quad. Why? I tried selecting them on my mesh renderer(3d), it doesn't work. Answers about 2d Sprite Renderer won't be accepted, since i want them on 3d mesh not 2d.

Bug 2: i create a new material, i click on to set the texture button. Sprites don't appear in this button. If i select "sand" material, then all 89 are inside the quad which is wrong. Sprites aren't even recognised in this button, it expects texture. Help!!!

How do i proceed to load that texture without issues ? Requirements: 1) i use primitive box, so creating different boxes with different uv coordinates is a big no (it would add to the 20 mb web player file size limit). Any script that would do that at runtime would also be a no, i want to use unity build in static batching so using a script will make it fail to understand it. I also want to do my "job" with 0 lines of code, just with build in tools, if possible.

2) i could do that at photoshop, that is slice the atlas there and import all 89 images to unity. Here are my questions with this solution. a) Will unity correctly handle static batching since 89 materials will be created ? b) Can i have some automation tools that can do the slice without going to photoshop ?

Thank you