Having abandoned clever-clever terrain stuff for now, I've run with bog-standard terrain stuff and got as far as creating a "hovership" to fly around it.
I spent a while getting the "dynamics" pretty good - it feels fun to fly now (although I'll still work on it for a while).
This picture is with some slightly "looser" settings, so it's not so much hovering as full-on flying. Looks nice, but this isn't intended to be an air combat game.
Do you like the "fog" effect?! I think I'm going to spend a little while applying some "bloom" and maybe normal-mapping to the terrain. I might add shadows, although my laptop can't generate them (the 360 will be able to!).
Then I have to start thinking about bullets (or whatever), enemies, AI, multiplayer, power-ups, more scenery objects (to hide behind, for instance) ...
I'm going to be busy!