argh. With SP3 release Auran's forum is so slow today, i figure i'd post the info here...Just finished and made available a small tool simplifying the process of getting DEM data into Trainz. Available for download at: http://trainz.luvr.net/projects-view.php?pid=390
I think it was adressed in the other forum, but it looks like side-effect of rescaling/blurring source image in the graphics program. Needless to say it shouldn't be done..well, for chroma images anyway. If your source is greyscale/landscape/spectrum coloured picture, you are generally safe to scale and/or blur it.