I see the same problem here. It only happens when smooth surface is enabled. I also tried to recreate the problem with a Surface Layer that has smoothing effect turned on. They should produce similar results, but they don't: the layer with smoothing enabled renders correctly. I will look into it.
This suggests a possible workaround. Don't use smooth surface but create the smoothing affect with a Surface Layer right after the Compute Terrain, with smoothing effect turned on. I am not 100% certain that it will produce the same look that you're after, but give it a try.
Matt