I can make a field of grass (as models) cover a very large area and still get an extremely high frame rate.

Actually, you don't need to chunk your level into grid components. The big frame rate killer is your high number of sprites/entities. Blocks do not support transparency from alpha channel. You have to use models with alpha channel in their texture (32-bit TGA). The best way to do this is to have your plants put into a grid arrangement from 2 to 16 quants apart (depending on detail level). I can make a quick sample to help explain, however, you'll have to wait until when I wake up about 10 hours later since I'm quite tired.

I did an experiment a long while ago to find out what effect multiple entities had on the frame rate. My May 3, 2005 blog entry (see news item #2) has these details which cover the impact high entity counts have on the frame rate. When all were not visible, the frame rate was past 500, but when all were visible, it was just 5 fps. I don't have the exact results for 2048 visible objects, but you can get an idea from what I have.