Have you applied the "terrainobject" action to the terrain? All objects that are in water must have this action for clipping underwater in the mirror view.

[EDIT]: use this new action:
Code:

---

MATERIAL terrain_clipping //for clipping the terrain underwater in the mirror view

{

	event = render_event();

	

	flags = enable_view;

	

	effect=

	"

	

	float4x4 matWorldViewProj: register(c0);



	texture entSkin1;



	vector vecSkill41;



	float1 mtlSkill1;



	struct VS_OUTPUT 

	{

		float4 Pos: POSITION;

		float2 texCoord: TEXCOORD0;

		float3 eyeLinear: TEXCOORD1;

	};



	VS_OUTPUT VS_p0(float4 Pos1: POSITION, float2 basemap: TEXCOORD0)

	{

		VS_OUTPUT Out;



		Out.Pos = mul(Pos1, matWorldViewProj);

		

		Out.texCoord = basemap;



		Out.eyeLinear.x = Pos1.x;

		Out.eyeLinear.y = Pos1.y;

		Out.eyeLinear.z = Pos1.z;



		return Out;

	}



	sampler BaseMap = sampler_state 

	{

		texture=(entSkin1);

		MAGFILTER = LINEAR;

		MINFILTER = LINEAR;

		MIPFILTER = LINEAR;

	};



	float4 PS_p0( float2 texCoord: TEXCOORD0, 

	float3 eyeLinear: TEXCOORD1) : COLOR 

	{

		float4 base = tex2D(BaseMap, texCoord);



		clip((eyeLinear.y-vecSkill41)*mtlSkill1);



		// Output

		

		return base * 1.2;

	}

	technique water

	{

		pass p1

		{

			VertexShader = compile vs_1_1 VS_p0();

			PixelShader = compile ps_2_0 PS_p0();

		}

	}

	";

}



ACTION terrainobject

{

	var hoch1;

	my.material = terrain_clipping;

	my.nofog = on;

	hoch1 = water_ent.z*0.049;

	while(1)

	{

		my.skill41 = float(hoch1);		

		wait(1);

	}

}

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