Maybe, you have to save it as .mdl first and reload it into MED, don't know.

'Regular Grid' means that from the top view that the vertices should have an identical distance against their neighbours. Maybe, it has to in the uv-map, too.

You can experiment with a terrain made in MED, create it, convert it (Edit --> Convert To Model), change things, convert it to terrain again (Edit --> Convert To Terrain), to get an idea what MED tolerates and what it doesn't tolerate.