OK, here are some tests. The bitmap used to create this bump function was created in 32 bit colour. So that's alright. However, as you can see, you can still see the steps, and I would guess there are 256 of them if you counted. (I'm not going to.) Note also, however, that the anti-aliasing type applied to the bitmap in the bump editor affects the appearance. If you don't have to cover a large area, you could use your bitmap to create a terrain, erode it to remove the steps (several erode clicks), and apply water to your terrain.