About the terrains... You can still get a smooth terrain (also depends on settings in MED Importing) using Photoshop and Bluring the heightmap. For lowering level of the terrain use (for example) 3 lower pixels than current level (or higher) to make a 'transition' to the lower plane (wich is 4 pixels lower). Thats just an example , but it'll create flat levels with smooth transitions between different layers. And then , you still have the option to surround your level with jagged mountains
You can still form the terrain , like in MED or any other model editor , in Photoshop. The difference is that you're not viewing it in 3D , but its enough to shape it by hand with the tools provided.