That was going to be my next step for the shader, thanks for saving me the headache.
take a look and see what you think
I think I love you!
(There is only one small problem, it now paints in both directions, upwards and downwards. I'm working on a quickfix.
http://www.youtube.com/watch?v=vDD66R_hIIgFor the fix I just changed this line from your vertex function:
Height = abs(1-(InPos.y/InPos.w));
to this:
http://www.youtube.com/watch?v=FrJyLcX49sk