An update: this seems to be a problem with the Terragen 3 with Animation version, both 3.2.03.0 and 3.2.04.0.
With the free version, I clean start the program. I add terrain > heightfield (load DEM) > navigate to the DEM file (in my case an img file). When I import it, it goes through the load bar motions and then imports the terrain correctly. I can zoom back and see the terrain deformation as it should be.
With the animation version, I go through the exact same steps, the program loads the DEM data, and then nothing. The terrain does not update.
I've tried it about 20 times over to make sure I'm not going crazy. I've tried other methods like saving with the free version and opening it up in the paid version, yet no DEM data gets translated.
Please let me know when there is a fix for this. We put Terragen up against the other terrain programs and were pleased with the results, but if the paid version cannot work to the same capacity it will be a huge problem for our projects and deadlines.