That is correct when Raytrace Objects is enabled; the raytracer does not currently support displacement on object geometry. Disable Raytrace Objects for true displacement. There are other disadvantages to this, and it must be done globally at this time (in the future we'll have a per-object option). TG2 can handle extremely high polygon objects however so if you can displace in another app and bake it as geometry, then export to TG in OBJ, that may be the better approach.
- Oshyan