HARBINGER-3D, i was having similar problems with objects placed "into" terrain meshes. i had floating metaball trees. i didn't even think of switching renderers, but solved my problem by converting the terrain to the vertex modeler.

top left: Gouraud Preview (tree firmly planted in hill)
top right: Tree takes flight when test rendered
bottom: Final render using vertexed terrain. (tree planted again)

-scott