hmm... yes that's a problem of your graphic card.
It has to support PS V1.1 to be able to render the terrain correctly.

What you see is only the mask-texture which "tells" the shader, how the different textures have to be rendered on the terrain.

The reason why you see the sky/ water through it is because the alpha channel of the mask texture is used as shadow-map for the terrain.
When the shader runs correctly it disables alpha-blending so that there are no "holes" (the blue areas behind the stone or the church) in the ground and the z-Buffer can be rendered normally.