Hmmm...let's have a look at your screenshot:
The lake has a 300km radius and is ~60km away from "origin" (= 0,0,0 coordinates).
At these coordinates, away from the origin where the altitude and Y are the same, there's a discrepancy between Y and "altitude".
You can see this by the different altitude settings in your lake object.
Y is 200m and altitude is 782m.
The further away from 0,0,0 the more discrepancy between these 2 coordinates arises.
This is what red_planet describes in more easier words.
Solution:
1) transform your scene closer to 0,0,0, using a transform shader
2) red_planets' suggestion to add a second planet at the same position as your normal planet. Increase radius with 100m if you want 100m water level etc.
I'll dig up some useful reading on the coordinates issues when I'm home.
Matt has written some useful information about this in the past.
Cheers,
Martin
