I have a test terrain I have been using.
For you have I done this:
entSkin1 = a green texture (24bpp BMP, 256x256)
entSkin2 = a brown texture (24bpp BMP, 256x256)
entSkin3 = a TGA Alpha channel. It it is a gradient fill to blend from the low to the high point. It is a 32bpp and 512x512.
I used the unmodified multitexturing shader that ventilator posted. So it should wotk for you if you add the Terrain action to your the HMP.
http://steempipe.technicalfoundry.com/testskins.zip Good luck!!