OK, at least that's something different. That's good. I still think you need to use USE_POLYGON, to get down to the actual surface of the terrain (sorry ... stubborn). That still gives the problem of possibly getting a trace not hitting the surface. I think this code might do the trick:
Code:

---

function village_func()
{
	my.polygon = on;	
	vec_set (temp, my.pos); 		
	temp.z -= 1000; 
	result = -1; // makes sure to initialize result to a known value we can check against
	result -= c_trace(my.pos, temp, ignore_me + ignore_sprites +  use_polygon);
	if(result >= 0) // acceptable value as long as trace origin is above the terrain surface
	{
		temp.z = my.z - result;
		vec_set(my.pos,temp);
	}
	else
	{
		// if first trace did not do the job do it again
		result -= c_trace(my.pos, temp, ignore_me + ignore_sprites +  use_polygon);
		temp.z = my.z - result;
		vec_set(my.pos,temp);
	}
	
}

function sioux_camp()
{
	temp.x = -96;
	temp.y = -1164;
	temp.z = 300;
	ent_create("tepee_village.mdl",temp,village_func);
}  

---

edit: now, if both traces fail to hit at all the village should appear at a world z of -1.
cheerio