I don't have Vue 4 (I have V5I), and got a reasonable image from your height-map with no real problems.

BUT: I have a little tickle in my back-brain from a thread I read (probably here) that seemed to say something to the effect that the texture-mapping mode can affect the terrain-mapping (as wierd as that seems). Since what you've got seems to be a tiling effect, maybe that's worth checking out? After all, it does rather look like what might happen if the height-map was applied in world-mapping mode instead of object-mapping mode..
No idea if this is any help, but it's possibly a blind-alley to chase down:-))

Cheers,
Diolma