you'll need to set your terrain to be 'solid' before it'll correctly boolean w/ a rock or a lattice.  and rock and/or lattice probably also need to be set to solid.

for the rock, click the 'E' next to it and check the 'solid when boolean rendering'... for the terrain and/or the lattice, I forget exactly where the solid option is in the terrain editor, but I'm sure someone else here knows...

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