nemisis 2 things im not sure if your checking or not but will have impact on mesh deformation.

be sure the terrain has the 'high pressision' checked in med on your terrain ( it should by defualt)

also right after you deform the mesh, you need to run
ent_fixnormals(entity,frame) on the mesh for properly collision after the deformation. it's a slow instruction because ti has to run through every polyface of the mesh and recaclualte the nomrals. so you need to give it a couple frames to make sure it's been completed