Are you deleting
superpalette.ter between each revision test?
I can't say exactly what it's for but it seems to affect texture LOD and having a miss-matched one can cause some odd artifacts.
Also, don't use DXT1. Using DXT5 will give a better result. It could be the DXT1 4-bit clamp contributing to that as well.
Also, as a side note, don't forget that the alpha channels are what control the specular level of the terrain.
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