Hmm, looks like Middle Earth?
It shouldn't make any difference how much you have exaggerated your terrain since sea level "should" be by definition at 0m since that's what sea level essentially is ...
Why your sea level is at 5486.4 m I don't know. If your sure that's the right height then try lowering your terrain (Heightfield Operator>Adjust vertical, type -5486.4 into the add height field). Your sea level "should" now be at 0m now and again your sphere or lake object should work correctly.

Richard
A thought: Is the terrain a bitmap rather than a geotiff? If so the sea level is set at an arbitrary height, well its not set at all really.
If your using a greyscale bitmap (bmp, tiff (not geotiff) etc) you will need to make two heightmaps, one from sealevel to the top of your highest peak and the other from sealevel to the bottom of your lowest sea trench. Using image map shaders plugged into displacement shaders (NOT Heightfield load) displace the heightmap above sealevel positively and the below sealavel negatively.