The 1600 64 by 64 area pieces is 1/4 our actual world size and used for testing of the terrain large scale. This way we can just import 4 pieces of terrain, and get the actual look of the full 25 km area. Our actual game test world will have 400 pieces of 250 by 250.
But overall, the engine imports that in about 4 minutes, but once its in, there is no deleting it, so you have to make a new area for the next trial run.
Can you imagine importing 200 pieces of terrain to find a flat spot in it, I'd cry.

Just so were clear, does it calculate from the lowest point to highest, and once you exceed the limt of distance between the two, it makes the rest of the upper flat, and I'd assume it would start at the bottom?
I've spent the day exploring WorldMachine and believe the issue was not so much in the altitude scaling, but the Advanced Perlin device scaling. Going to play around with it a few more days before we go back to Hero.
Also, I've noticed that once I import the terrain, it appears about 200 meters up above the camera, even with a small piece. Which leads me to believe the terrain is starting at a point a few hundred feet above sea level, and then rising with a hill farther. So I've made it start closer to sea level to see if that helps.