When you double click on the static in the Object window, put a tick in the box that says 'Has Distant LOD'. The long grey button now becomes functional. Click it and then browse to your LOD .nif for the different levels of LOD
When generating object LOD the CK looks for any TGA textures related to the lod meshes it's generating. If you add a new mesh, you need to make sure you have a TGA for the CK to find when generating the LOD.