Hey Nick, can I make a suggestion?
That file was also causing my issues, and the reason is, I was clicking over from your link talking about renaming the file to Holger's terrain.cfg re-build and forgetting to do the .BGL rename!
Can that rename instructions be added to Holger's instruction list? Just a thought....
I had morphing issues big time, was driving me crazy, once I realized i was missing the comment on your post I started again and BAM, all fixed! The post by tp861 was the one that turned the light on that I had missed a step.