Attached Link: http://www.derby-vi-service.demon.co.uk/pictures.htm

First, if you meant by 'using terrain and getting a square base' that you drew lightning in the terrain editor, you can get rid of the square base in terrain editor by using the clip function. Second, using an alpha plane can give excellent results. Make your alpha-map by creating a negative of your lighning picture, and altering the tone curve in photopaint or similar until you get the transparency curve you need. You can see a couple of images with lighning on my site, follow the link.